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North Korean laws and regulations for consumer needs

Wednesday, May 2nd, 2018

Benjamin Katzeff Silberstein

An interesting column in the Daily NK reflects on changes in the North Korean system both to protect consumers, and boost domestic consumer goods production. The author, Na Jung Won, sources some of these insights from North Korean academic journals, pointing out that one article going back as far as to 2012 studies the insights into marketing strategy from the “Boston Consulting Group Matrix”, which I found pretty interesting, and one might wonder whether Choson Exchange has played a role in bringing this particular insight into the country. Overall, North Korean journals tend to often include references to theoretical models that are sometimes unexpected, given the largely closed-off nature of academia and research there.

Here’s the column:

Research has found that the North Korean economy has been growing continuously since the start of the Kim Jong Un era, despite economic sanctions and pressure from the international community. One can thus conclude that the North is able to maintain effective domestic growth while to some extent avoiding the effects of such outside variables. But in order to understand this economic growth, it is important to take a closer look at the North’s particular style of business administration.
Changing business law in North Korea
There have been two revisions or additions to North Korea’s business law since Kim Jong Un came to power – one enacted on November 5, 2013, and the other on May 21, 2015 – changing official business justifications and definitions, organizational principles, and management principles that are beginning to be reflected on the ground in the country.
Chapter 1 Article 4 of the business law covering management principles states, “In precisely laying out the nation’s management strategy and business strategy, ‘the administration of socialist business responsibility’ shall be carried out, and management activities must be carried out with socialism as the most fundamental underlying principle.” Chapter 4 is titled ‘Business Management,’ while Chapter 29 covers the same topic. Chapter 30 covers business strategy and the foundation for related business rights over socialist ownership, spelling out the management activities that must be carried out in realizing business development.
The entire system of financial management is governed under these business strategies, including item prices, sales, and salary standards. There is also a system for business capital, which spells out rights to earnings for companies, the unemployment payment system, and how companies can acquire loans from a commerce bank. Sales and pricing rights and restrictions are placed on products, contract requirements for distribution, sales, and trade in other products are described, and rules are laid out for how buyers can return problematic or poor-quality products which were misrepresented under the purchasing contract.
Trends in North Korean business administration research
North Korea is positioning its businesses and factories to increase their capabilities and follow global technological trends under its latest ‘five-year strategy for national economic development,’ revealing a shift in concern toward enacting effective changes to the previous, more centrally-planned economic strategy.
Research by Kim Kyung Ok for Economic Study No. 174 (2017-1) states: “Expanding production and planning rights for businesses must include contracts, and ordering contracts which are made under consideration of state central planning and quota fulfillment. Businesses are not permitted to unilaterally cancel contracts without justification, and consultations must be made between the parties to the contract over any changes or cancellations. The results are reviewed by the relevant organs and the agreed-upon production plan must be carried out under strict rules.” In other words, a system has been established to ensure that production contracts are carried out properly.
It implies that order contract fulfillment is extremely important even for ordinary businesses. Research by Rim Yong Chan for Economic Study No. 154 (2012-1) states that companies must follow contracts for producing and delivering products to the letter. Cha Jong Kyung writes for Economic Study No. 162 (2014-1) that agreements between factories and businesses must be made under a registered contract stipulating set rules for prices and collateral to ensure each party’s claim to profits. Rules for contracts for production materials, delivery, and other aspects of the process all help establish emerging new responsibilities for all parties involved.
North Korea is also increasing research into financial concepts such as credit and non-cash money, hoping to reap the benefits of development through credit and move towards creating new capital in addition to simply saving money. The idea is that diversifying credit-based transaction types will improve consumers’ purchasing power and economic activity as a whole.
Marketing has also been the subject of research in North Korea. Economic Study No. 156 (2012-3) by Pak Chun Gwang points to differing payment abilities and demands from residents in different areas and in different seasons of the year, as well as how the growing demands in material culture are affecting available products and services. In other words, matching resident needs and demand for products will have to be carried out according to regional and seasonal ‘targeting’ and ‘positioning.’ In additional research utilizing the principles of product lifecycle (PLC) management and the ‘Boston Consulting Group Matrix’ (typically referred to as the BCG Matrix), concepts of ‘cost leadership’ and ‘differentiation’ in international business management are discussed.
Effects of changing business administration
Various approaches to business management are practiced in workplaces across North Korea. After repairing the Gold Cup Food Processing Plant (est. 2006) in 2015, the previously low-volume operation increased from producing 360 products in less than 10 categories to over 600 products in close to 30 categories in November 2017.
A ‘New Products Expo’ starting in August 2017 was used to showcase the country’s domestic products, promoting the customer’s needs as the most important aspect. President of the beverage industry group Rim Song Chol said in an interview, “We are looking to the global market as we produce new products, but we are communicating with and listening to our customers as our number-one concern in informing the products we make,” implying that customer demand for a product is the most important factor in their process.
Producers are saying they will halt production for items that do not sell very well in the markets. The use of information management systems in the manufacturing process is also being promoted as helping producers make decisions over materials or whether or not to continue production, where unsuccessful new products are discontinued.
The Kim Jong Suk Pyongyang Textile Mill has also apparently shifted production to fabric for business suits after an increase in customer demand, running a synthetic fabric factory in Pyongyang to create a variety of suit material options according to specific orders. Competition in this market is heating up due in part to the use of synthetic fabric recycling for the suits. ‘Tetoron’ synthetic fabric production at the Kim Jong Suk Pyongyang Textile Mill is thus steadily rising, and customers such as the North’s official female marching band were able to demand custom colors and styles for their uniforms.
Product distribution companies are also changing to meet the needs of customers, with a lively and competitive market of service providers working to gain a leg up on their competitors. The Kwangbok Area Shopping Center, formerly the Kwangbok Department Store (est. 1991 and renovated in 2011), became a place where domestic products were sold under customer-responsive profit principles. In order to increase the variety of available products, government-affiliated domestic producers such as clothing and foodstuff factories are in the midst of improving capabilities and product quality. To attract more customers and increase sales, lighting fixtures are being improved in the shops and displays appear brighter and more modern. The third floor of the shopping center includes a buffet-style restaurant with over 400 menu items. Shops also offer loyalty cards to encourage repeat visits and offer rewards.
The Pyongyang Department Store No. 1 (est. 1982, Jung-gu district) is a top competitor of the Kwangbok Area Shopping Center. There, shops order directly from production companies, and it has become known among consumers in the capital as a place selling all the latest and most popular items. Aiming to become a ‘Shopping Center for the People’s Desires,’ this department store is also focusing on customers’ needs. Shops have instituted a system to track customer reactions and the popularity of items through sales records. These are just some of the latest signs of increasing attention being paid to customer demand in North Korea.
Source:
North Korean business developments reflect focus on ‘customer needs’
Na Jung Won
Daily NK
2018-05-01
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Posted in Advertising, Economic reform, Political economy | Comments Closed

Russian sanctions enforcement grounds business with North Korea to a halt

Thursday, April 19th, 2018

Benjamin Katzeff Silberstein

NPR reports, from Vladivostok, of frustrated Russian businesspeople and halted dealings with North Korea, in the face of sanctions pressure:

In his second-floor office in a shabby building a few steps away from the Hotel Gavan, Vladimir Baranov was fuming over the new restrictions.

In May, his company, InvestStroyTrest, started a ferry service between Vladivostok and the North Korean port of Rajin, a 12-hour ride along the coast.

“Of course I don’t have any cargo volumes with these sanctions, which ban even wheelchairs,” said Baranov. “I’m not working right now because there’s no cargo.”

His company’s ferry, a North Korean vessel named the Man Gyong Bong, is now stuck in Rajin after Vladivostok port officials refused to let it dock under suspicion it was carrying sanctioned goods — a claim that Baranov is disputing in court.

Baranov is still hoping he’ll find passengers among Russian and Chinese tourists, though he can soon forget about the region’s thousands of North Korean migrant workers that Moscow says will have to leave.

Most of these laborers work on construction sites and farms in the Russian Far East, though some are employed at the North Korean restaurants that dot Vladivostok. At the Koryo restaurant next to city hall, young North Korean women in traditional costumes belt out sentimental Korean tunes over the karaoke system.

“They’re great workers who’ll work day and night,” said Valentin Pak, a Russian entrepreneur and politician whose own ancestors emigrated from Korea five generations ago. “They will be sorely missed.”

Pak said it will be hard to replace the North Koreans and is skeptical of statements by regional officials that they can be replaced with workers from India or Central Asia.

Ever since Russia began settling its remote Pacific territories in the mid-19th century, labor shortages have been a serious problem — and workers from neighboring Korea were a logical choice to help fill the gap. During Soviet times and into the 1990s, North Koreans toiled under brutal conditions in Siberian logging camps run by the North Korean government under an agreement between Moscow and Pyongyang.

Today the government in Pyongyang still profits from its citizens going to Russia for work, which is the whole idea behind the restrictions on North Korean workers.

“For North Korea, it’s a business, because all the laborers who work here pay their government to be here,” said Irina Tyan, a businesswoman who co-owns a farm with the North Korean consulate in Vladivostok. Like Pak, she is a member of Russia’s ethnic Korean community, which is well-integrated into Russian society.

Tyan’s North Korean partners invested $2 million into a 10,000-acre farm that grows soy, corn, wheat and oats. Until last year, the business employed 10 Russians and about 20 North Koreans.

The North Korean workers earned 20,000 rubles ($320) per month plus room, board and clothing, Tyan said, though she didn’t pay them directly but via their North Korean government supervisor.

She disagrees with reports thatNorth Koreans work in slave-like conditions in Russia. They just don’t make the same demands as Russian workers — such as an eight-hour workday with lunch and smoking breaks — and are under the strict guidance of their North Korean minders, Tyan said.

“They’re afraid, that’s clear,” she said. “But they’ll still do anything to get here because they can go where they want, go shopping, buy whatever they want or need. They won’t say it out loud, but it’s clear that they want to continue living and working here.”

After her quota of 30 North Korean workers was canceled because of the sanctions, Tyan’s last eight North Koreans are due to go home this month. If the sanctions aren’t lifted by next year’s planting season, she said she would have to sell the business.

“Of course, nobody knows what will happen next,” Tyan said. “Maybe they’ll lift the sanctions tomorrow, maybe in a year, maybe never.”

One Russian businessman who remains optimistic is Ivan Tonkikh, who runs RasonConTrans, a cargo terminal in Rajin, North Korea, jointly owned by Russian Railways and the North Korean state.

Although the venture is exempt from the latest U.N. sanctions, Tonkikh is having trouble finding partners who would be willing to export coal via Rajin. While business is at a standstill, he said that he wants to convince the U.N. to allow the delivery of humanitarian shipments to his port.

Tonkikh downplays the economic levers Moscow has over Pyongyang, though he adds that the cargo terminal is an investment in a brighter future.

“Rajin is only the beginning. It’s the first segment of a restored trans-Korean railway,” said Tonkikh. “We call Rajin the ‘short track to consensus’ on the Korean Peninsula.”

Article source:
Sanctions Targeting North Korea Ripple Into Russia
Lucian Kim
NPR
2018-04-19

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Posted in International trade, Political economy, Russia | Comments Closed

North Korea’s Supreme People’s Assembly Session: Economic reporting

Thursday, April 12th, 2018

By Benjamin Katzeff Silberstein

On April 11th, 2018, North Korea’s rubber-stamp parliament held a session in Pyongyang. Some news media has focused on Kim Jong-un’s absence from the session, but some interesting reporting on the economic situation came out of the session as well. Here are the key points on the economy (from KCNA on April 12th, with my annotation and emphasis added):

Deputy Pak Pong Ju, premier of the Cabinet, delivered a report on the fulfillment of the work of the Cabinet for Juche 106 (2017) for carrying out the five-year strategy for national economic development and its tasks for Juche 107 (2018) at the Sixth Session of the 13th Supreme People’s Assembly held on Wednesday.

Last year was a year of great victory in which a great progress had been made in carrying out the five-year strategy for the national economic development under the outstanding and seasoned guidance of the respected Supreme Leader Kim Jong Un, repelling unprecedentedly grave challenges stemming our advance, the reporter said.

According to the report, last year the Cabinet organized a drive for putting the nation’s overall economy on a higher stage with a main emphasis put on revitalizing the production by locally producing equipment, raw and other materials on the principle of self-support and self-sufficiency while focusing the state efforts on augmenting the foundation for electricity production, rounding off the system of Juche iron production and realizing the independence of chemical industry in line with the five-year strategy for national economic development set forth by the Party.

Note the emphasis here on local production, the expansion of which has been a key policy under Kim Jong-un.

The achievements made last year, a year of crucial importance in carrying out the five-year strategy for national economic development, proved once again that no desperate sanctions and pressure moves of the U.S. and its vassal forces to destroy the sovereignty of the DPRK and its rights to existence and development can ever check the progress of the Korean people dynamically advancing with firm faith in the validity of their cause and its final victory under the wise guidance of the Party and that the cause of building a powerful socialist country is sure to be accomplished.

Saying that this year we are faced with the tasks to make a breakthrough of revitalization in the economic front as a whole while frustrating the challenges of the hostile forces, who are making last-ditch efforts, through all-people offensive under the militant slogan of “Let us launch a revolutionary general offensive to achieve fresh victory on all fronts of building a powerful socialist country!”, the reporter specified them.

The fighting goals for the third year of the five-year strategy for national economic development should be attained without fail with a firm hold on the key tasks of strengthening the independence and Juche character of the national economy and improving the standard of people’s living.

The power industrial sector should put defective generating equipment into good shape and reinforce them, take scientific and technological measures for lowering the standard of coal consumption at thermal power plants and put the operation of generating equipment additionally installed at the Pukchang Thermal Power Complex on a normal track and thus increase the electricity production with the use of thermal power source onto a high stage.

The emphasis on independent electricity consumption makes a lot of sense, particularly as North Korea’s oil and fuel imports are being squeezed. But it’s a problem going back much, much further than the past year’s sanctions.

The coal industrial field should attain the monthly and quarterly coal production goals and create more coal fields so as to fully meet the demand for coal increasing in different sectors of the national economy.

Note: the national economy. The dependence on revenues from coal exports has been a problem, and one side-effect of sanctions may be that domestic industries get access to more and cheaper coal.

In the field of metal industry, Korean-style Juche-based iron making production system should be further perfected by the use of oxygen heat blast furnace and efforts be put into improving the quality of steel and diversifying the kinds of steels through introduction of advanced technologies so as to fully meet the demand for iron and steel of the national economy.

Again, national economy. Diversification is also an important and long-standing goal, and North Korea has long sought to not just export raw materials, but manufacture and sell more of end-products as well.

The field of chemical industry should unconditionally hit the fertilizer production target to timely provide nitrogenous fertilizer to the agricultural field ahead of farming processes. The production at the February 8 Vinalon Complex should be invigorated to fully supply various chemical products including vinalon, caustic soda and vinyl chloride to various sectors of the national economy.

Vinalon…Good luck.

Along with the establishment of various catalyst production bases, the construction of main production processes should be pushed forward at the Sunchon Phosphate Fertilizer Factory and the process for production of carbonate of soda with glauberite as starting raw material should be renovated and perfected.

The machine industrial sector has to step up the modernization of machine factories, unconditionally hit the target for production of tractors and trucks and put the quality of machinery on the world level.

Advanced mining methods should be widely introduced to increase the production of minerals and nonferrous metal.

The railway transport sector should ensure in a responsible manner the transportation of materials necessary for various sectors of the national economy and capital construction projects.

The Cabinet will bring about a remarkable turn in improving the standard of people’s living through production surge in the fields of light industry, agriculture and fisheries this year.

Equipment and production processes should be rearranged on a manpower-saving and electricity-saving basis, diverse and quality light industrial goods produced on a larger quantity with locally available raw and other materials, and local economy should be developed in a peculiar way with reliance on the domestic resources.

High-yielding farming methods should be positively introduced and the proportion of farm work done by machines should be drastically increased to attain the grain production goal for this year without fail.

The fisheries field should unconditionally hit the fish production target and at the same time finish the construction of projects for consolidating the material and technical foundation of fisheries ahead of schedule.

Big efforts should be directed to sprucing up Samjiyon County into a standard and model county under socialism and the construction of the Wonsan-Kalma coastal tourist area should be finished within specified date. And such capital construction projects as the Tanchon Power Station and the second-phase waterway project in South Hwanghae Province should be pushed forward.

The rate of rooting of saplings should be ensured at more than 90 percent through efficient tree planting and meticulous cultivation of planted trees and the appearance of the country be bettered through the technical renovation and repairing of highways and tourist roads in a qualitative way and the rearrangement of key rivers and streams based on an all-people movement.

All the sectors and units should solve the sci-tech problems arising in completing the domestic production of materials and equipment and the structure of self-supporting economy with firm reliance on science and technology.

The reporter stressed that the Cabinet and other state economic guidance organs would work out in a practical way an operation plan for hitting this year’s targets and push forward its implementation in a responsible manner through skillful operation and command to successfully attain the fighting goals set forth by the Party and thus fully discharge their responsibility and duty in glorifying this year marking the 70th anniversary of the DPRK as a year of victory to be specially recorded in the history of the country.

I don’t have time to add more commentary right now, but will hopefully be able to return to this later. Below is KCNA’s rendition of the state budget report on last year and this year and there’s lots of interesting stuff to discuss here:

Deputy Ki Kwang Ho, minister of Finance, made a report on the fulfillment of state budget for Juche 106 (2017) and on the state budget for Juche 107 (2018) of the DPRK at the 6th Session of the 13th Supreme People’s Assembly held on Wednesday.

According to the report, last year the state budgetary revenue plan was over-fulfilled by 1.7 percent or 4.9 percent increase from the previous year.

The local budgetary revenue plan was carried out at 100.5 percent.

Last year the state budgetary expenditure plan was carried out at 99.8 percent.

15.8 percent of the total expenditure was earmarked for the increasing of the military capabilities of the country and 47.7 percent for the development of the national economy.

Investment in the field of science and technology increased 8.5 percent as over the previous year, thus contributing to settling the scientific and technological problems arising in the economic development and to accomplishing the tasks for studying ultra-modern field.

5.2 percent more fund was allocated to key sectors of the national economy and for the improvement of people’s livelihood than the previous year, thus actively promoting the drive for putting power, coal, metal, chemical, machinery and light industrial fields on a Juche basis and updating their production processes. In particular, it helped build a Korean-style oxygen heat blast furnace at the Kim Chaek Iron and Steel Complex and attain the goal of producing new type tractors and trucks.

2.6 percent more investment was made for the construction field than the previous year, while 36.3 percent of the total expenditure was directed to facilitating the building of a highly-civilized socialist power, thus contributing to the implementation of the Party’s policies of prioritizing the education and health care and to the development of sports and literature and arts.

According to the report, the state budgetary revenue and expenditure for this year have been shaped in such a way as to carry out the five-year strategy for the national economic development.

The state budgetary revenue envisages 3.2 percent increase over last year, of which the transaction tax, key item of the budgetary revenue, is expected to swell 2.5 percent while the profits from state enterprises is expected to grow 3.6 percent, to hold 85.3 percent of the total revenue.

The income from cooperative organizations is expected to grow 0.9 percent, the real estate rent 1.8 percent, the social insurance fee 1.2 percent, while the revenue from property sales and price differences is to grow 0.5 percent and other revenue 0.8 percent. The revenue from economic trade zones is expected to increase 2.5 percent.

The central budgetary revenue out of the state budgetary revenue stands at 73.9 percent which means that the revenue from the central economy holds an overwhelming proportion. Provinces, cities and counties are expected to balance expenditure with their own revenue and contribute lots of funds to the central budget.

The state budgetary expenditure is to grow 5.1 percent over last year’s.

An investment in strengthening the independence and Juche character of the national economy and improving the standard of people’s living will increase 4.9 percent as against last year and thus relevant fund will go to 47.6 percent of the total expenditure.

An investment in the field of science and technology will increase 7.3 percent.

Expenditure for the overall national economy including power, metal, coal, chemical and machine industries, railway transport, light industry, agriculture and fisheries will increase 5.5 percent.

The financing necessary for actively promoting the capital construction and further expanding the achievements of forest restoration campaign will swell 4.9 percent.

5.9 percent more fund will go to the education field, 6 percent more fund to public health, 5.1 percent more to sports field and 3 percent more to literature and art.

15.9 percent of the total expenditure will go to increasing the military capabilities for self-defence.

This year also, lots of educational aid fund and stipends will be sent for the children of Koreans in Japan.

The reporter said that the state budget for this year will be successfully carried out through meticulous organization of economic operation and command and thus financially back the building of a powerful socialist country.

(UPDATE 4-15-2018: Korean original for the budget report added below, date fixed above):

지난해 국가예산집행의 결산과 올해 국가예산에 대한 보고

(평양 4월 12일발 조선중앙통신)

11일에 진행된 최고인민회의 제13기 제6차회의에서 조선민주주의인민공화국 주체106(2017)년 국가예산집행의 결산과 주체107(2018)년 국가예산에 대한 재정상 기광호대의원의 보고가 있었다.

보고에 의하면 지난해 국가예산수입계획은 101.7%로 수행되였으며 전해에 비하여 104.9%로 장성하였다.

지방예산수입계획은 100.5%로 수행되였다.

지난해 국가예산지출계획은 99.8%로 집행되였다.

나라의 군력강화에 지출총액의 15.8%를 돌렸으며 인민경제발전에 지출총액의 47.7%를 돌리였다.

과학기술부문에 대한 투자를 전해에 비하여 108.5%로 늘여 경제발전에서 제기되는 과학기술적문제들을 해결하고 첨단분야의 연구과제를 완성하는데 기여하였다.

인민경제의 중요부문과 인민생활향상에 전해에 비하여 105.2%로 늘어난 자금을 지출하여 전력,석탄,금속,화학,기계,경공업부문의 주체화와 생산공정의 현대화를 적극 추동하였으며 특히 김책제철련합기업소에 우리 식의 산소열법용광로를 건설하고 새형의 뜨락또르와 화물자동차생산목표를 점령하는데 이바지하였다.

건설부문에 전해에 비하여 102.6%로 투자를 늘이였다.

사회주의문명강국건설을 앞당기는데 지출총액의 36.3%를 돌려 당의 교육중시,보건중시정책을 관철하고 체육과 문학예술을 발전시키는데 이바지하였다.

보고에 의하면 올해 국가예산은 국가경제발전 5개년전략수행의 요구에 맞게 국가예산수입과 지출을 편성하였다.

국가예산수입은 지난해보다 103.2%로 장성할것으로 예견하였으며 그가운데서 예산수입의 기본항목인 거래수입금은 102.5%로,국가기업리익금은 103.6%로 늘어나 수입총액의 85.3%를 차지할것으로 보았다.

협동단체리익금은 100.9%,부동산사용료는 101.8%,사회보험료는 101.2%,재산판매 및 가격편차수입은 100.5%,기타수입은 100.8%,경제무역지대수입은 102.5%로 늘어나게 된다.

국가예산수입에서 중앙예산수입은 73.9%로서 중앙경제에 의한 수입이 압도적비중을 이루며 도,시,군들에서 자체의 수입으로 지출을 맞추고 많은 자금을 중앙예산에 들여놓을것으로 예견하였다.

국가예산지출은 지난해에 비하여 105.1%로 장성하게 된다.

인민경제의 자립성과 주체성을 강화하고 인민생활을 개선향상시키기 위한 투자를 지난해에 비하여 104.9%로 장성시켜 지출총액의 47.6%에 해당한 자금을 돌리게 된다.

과학기술부문에 대한 투자를 107.3%로 늘인다.

전력,금속,석탄,화학,기계공업과 철도운수,경공업,농업,수산업을 비롯한 인민경제전반에 대한 지출을 105.5%로 늘인다.

중요대상건설을 적극 추진하고 산림복구전투의 성과를 더욱 확대해나가는데 필요한 자금보장을 104.9%로 늘이게 된다.

교육부문에 105.9%,보건부문에 106%,체육부문에 105.1%,문학예술부문에 103%로 투자를 늘인다.

자위적국방력을 강화하는데 지출총액의 15.9%를 돌리게 된다.

올해에도 재일동포자녀들을 위하여 많은 교육원조비와 장학금을 보내준다.

보고자는 경제작전과 지휘를 빈틈없이 짜고들어 올해 국가예산을 성과적으로 집행함으로써 사회주의강국건설을 재정적으로 안받침해나갈것이라고 강조하였다. (끝)

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Posted in Agriculture, Economic reform, Foreign direct investment, International trade, Political economy, Statistics | Comments Closed

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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Kim Jong-un’s Wonsan boat at Tae-do in 2017

Monday, April 9th, 2018

With Planet Labs imagery, we are able to get improved and affordable access to some remote places in North Korea which allows us to keep better track of changes than is possible with just Google Earth or Google Maps. Here is a small example…

Analysis of the North Korean media indicates that Kim Jong-un spends a lot of time in Wonsan. As we all know, he has a family compound there that was visited by Dennis Rodman and his delegation. At this compound, we can observe several unique boats that are only seen in Wonsan (pictured below).

Kim Jong-un also stores some of these at a separate maintenance facility in central Wonsan (with some other boats that are at his disposal):

There are five of these particular boats as far as I am aware. They are approximately 50m-60m in length. From satellite imagery, it appears they are mostly differentiated by the amount of cover they provide. They may each offer different services, but I have not been able to see many ground-level photos of these boats. As best I can tell, they are not self-propelled and have to be pulled to new locations.

 

  

Based on Google Earth imagery I was under the impression that these deck boats were simply transferred back and forth between the two locations mentioned above (Kim compound and storage facility), but with planet imagery, we can see that they are used more widely.

According to imagery form Planet Labs, two of these deck boats were deployed to Tae-do in the summer of 2017.

The first boat shows up in Planet Labs imagery of Tae-ri (below) on May 24, 2017, and it is visible until August 30, 2017.

The second boat appears in Planet Labs imagery at the same location on September 7, 2017 and is gone by September 13, 2017.

So it appears (superficially) that either Kim Jong-un left one of his leisure craft docked off the island to use whenever he felt like “getting away,” or perhaps it is being used by senior personnel in the military as a “perk.”

As for the island itself, Kim is never reported to have made a guidance visit to it. It is most well known for hosting a small naval ship repair unit, so there may always be some service personnel within view of the boat.

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UN blacklists North Korean ships accused of smuggling

Friday, March 30th, 2018

Benjamin Katzeff Silberstein

Talks or none, the international community continues the struggle to tighten enforcement of economic sanctions on North Korea. Reuters:

The United Nations Security Council blacklisted dozens of ships and shipping companies on Friday over oil and coal smuggling by North Korea, boosting pressure on Pyongyang as leader Kim Jong Un plans to meet with his South Korean and U.S. counterparts.

The council’s North Korea sanctions committee acted on a request by the United States, designating 21 shipping companies — including five based in China — 15 North Korean ships, 12 non-North Korean ships and a Taiwanese man.

The move comes days after Kim met Chinese President Xi Jinping and an announcement that the North Korean leader would meet South Korean President Moon Jae-in on April 27. He is also scheduled to meet U.S. President Donald Trump some time in May.

While Trump has agreed to meet Kim, he tweeted on Wednesday that “maximum sanctions and pressure must be maintained.”

Tension over North Korea’s tests of nuclear weapons and ballistic missiles surged last year and raised fears of U.S. military action in response to the North’s threat to develop a nuclear weapon capable of hitting the U.S. mainland.

But the situation has eased significantly since North Korea sent athletes to the Winter Olympics in South Korea in February.

U.S. Ambassador to the United Nations Nikki Haley said the U.N. sanctions designations — the largest agreed by the council’s committee — were aimed at shutting down North Korea’s illegal smuggling activities to obtain oil and sell coal.

“The approval of this historic sanctions package is a clear sign that the international community is united in our efforts to keep up maximum pressure on the North Korean regime,” she said in a statement.

The list was part of a request by Washington late last month for 33 ships, 27 shipping companies and the Taiwanese man to be sanctioned. China delayed that bid on March 2, but did not give a reason. The 15-member committee works by consensus.

Washington then proposed a shortened list on Thursday, which was unanimously agreed by the committee on Friday.

The 12 non-North Korea ships are now subjected to a global port ban and must be deregistered, while the 15 North Korean ships are subjected to an asset freeze and 13 of those a global port ban.

The Taiwanese man, Tsang Yung Yuan, is accused of coordinating “North Korean coal exports with a North Korean broker operating in a third country, and he has a history of other sanctions evasion activities,” according to the U.N. listing. He is subjected to an asset freeze and travel ban.

The assets of the 21 shipping companies, which include businesses based in the Marshall Islands, Singapore, Panama and Samoa, must now be frozen.

Article source:
U.N. blacklists dozens of ships, companies over North Korea smuggling
Michelle Nichols
Reuters
2018-03-30

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Singapore revokes work permits for North Koreans

Tuesday, March 27th, 2018

Benjamin Katzeff Silberstein

In a report to the UN Security Council on its implementation of resolution 2397, Singapore says it has revoked all work permits for North Korean citizens in the country. Straits Times:

The resolution mandated that member states repatriate all North Korean workers in their jurisdictions no later than December 2019, or two years from the adoption of the resolution.

In its implementation report dated March 19, the Singapore government said: “Singapore has revoked the work passes of all nationals of the Democratic People’s Republic of Korea earning income in Singapore and will not grant new work passes to nationals of the Democratic People’s Republic of Korea.

“There are therefore no nationals of the Democratic People’s Republic of Korea with work passes in Singapore.”

Democratic People’s Republic of Korea is the official name of North Korea.

To raise awareness of the resolution, relevant authorities in Singapore have “proactively engaged business owners and relevant entities to remind them of existing and new restrictions” imposed on North Korea, according to the report.

Financial institutions in Singapore have also been alerted to the risk of North Korea “using nominees, front companies and Singaporean companies” to circumvent the UN Security Council’s resolutions, said the report.

In November last year, Singapore suspended all commercial trade with North Korea, a provision also mentioned in the implementation report last week.

“Singapore has imposed a prohibition on the import, export, re-export, transit and trans-shipment of all goods for the purposes of trade with any person in the Democratic People’s Republic of Korea,” said the report.

Article source:
Singapore revokes all North Korean work permits
Straits Times
2018-03-27

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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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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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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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