Category Archives: NK Economics

N. Korea’s expatriate labor needs ethical and financial limits

N. Korea increasingly relies on expat labor for hard currency

A series of new reports suggests that the export of labor has become a major source of income for Pyongyang. The Financial Times cites an NGO estimate that the regime earns $1.5 to $2.3 billion a year from contract labor, in line with educated estimates of its annual revenue from missile sales ($1.5 billion) or arms deals with Iran ($1.5 billion to $2 billion). Ahn Myeong-Cheol, a former prison camp guard and leader of the NGO NK Watch, says that there are now 100,000 North Koreans working overseas, double the number it had posted overseas in 2012. Ahn believes North Korea is increasing its use of contract labor to compensate for arms revenue lost to U.N. Security Council sanctions. Marzuki Darusman gives the lower estimate of 20,000. In testimony appended to the end of this post, Greg Scarlatoiu of the Committee for Human Rights in North Korea puts the figure at around 53,000. He also offers this very specific breakdown:

Currently, 16 countries reportedly host workers sent by the North Korean regime: Russia (20,000), China (19,000), Mongolia (1,300), Kuwait 5,000), UAE (2,000), Qatar (1,800), Angola (1,000), Poland (400-500), Malaysia (300), Oman (300), Libya (300), Myanmar (200), Nigeria (200), Algeria (200), Equatorial Guinea (200) and Ethiopia (100).4 Although North Korea is not a member of the International Labor Organization (ILO), all but two of the 16 states officially hosting North Korean workers are ILO members.

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Why legal investments in North Korea are a money laundering risk

You’ve often seen me write about the importance of “financial transparency” in transactions with North Korea. For a decade, economic engagement has mostly been done by one of two models: (1) controlled interactions with members of the elite, the actual effects of which are negligible at best; and (2) barbed-wire capitalism, where a few North Korean officials relay orders from foreign managers to hand-picked workers, and where the regime seals the whole enterprise off to prevent it from influencing the local community.

The former are, for the most part, of little financial significance. The latter may represent a significant source of income for illegitimate uses, and may also help the regime hide its flows of dirty money.

It wasn’t supposed to be this way by now. The idea behind economic engagement was to gradually draw North Korea into compliance with the rules that the civilized world lives by. Yet ten years later, the South Korean Unification Ministry can’t tell us how much (if anything) Kaesong’s workers receive after the regime takes its cut from their wages, and the Undersecretary of the Treasury recently expressed his concern about just how North Korea is spending that money.

The U.N. Panel of Experts now expresses a related worry — that North Korea could be using its ostensibly legal businesses to conceal and launder the proceeds of illicit activity:Screen Shot 2015-03-03 at 7.32.53 AMScreen Shot 2015-03-03 at 7.33.11 AMA few days ago, we saw that North Korean diplomats have been smuggling gold to earn hard currency for Pyongyang.

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Somehow, I don’t think this will encourage Kim Jong Un to engage with us.

I think Marzuki Darusman is a good man who means well, but it’s difficult to derive a coherent policy from this:

“This is a new thing, spotlighting the leadership and ridiculing the leadership. In any authoritarian, totalitarian system, that is an Achilles’ heel,” Darusman said in an interview in Tokyo, where he held talks with the government on an investigation into North Korea’s abductions of Japanese citizens.

If this kind of ridicule seeps into North Korea, it could become lethal for the regime, he said. “If they want to preserve their system, the only way to do that is not to close themselves off from the international community but to actively engage,” he said. [Washington Post, Anna Fifield]

OK, so they need “engagement”–presumably, trade–to preserve the system, which we all agree should not be preserved. So should we cut off trade?

But the world also should be actively engaging with the Kim regime to draw it out of its self-imposed isolation, Marzuki Darusman said Friday, calling the United States’ increasingly aggressive approach toward North Korea “unfortunate.”

“In the overall picture, I think much hinges on the way the U.S. acts,” said Darusman, a former attorney general of Indonesia. A harder line against North Korea could “stall or delay the process that needs to be put into place,” he said.

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Reports: Musan mine to lay off 10,000 workers; coal exports halted

At the end of last year, the Daily NK reported that North Korea’s iron ore exports to China had stopped, but offered two different explanations for that — a price dispute with China, and a shortage of hydroelectric power caused by drought. One of the reports claimed that the power cuts halted the massive iron ore mine at Musan, which had caused “major disruptions” at the Kim Chaek and Songjin steel mills. All three facilities are propaganda showpieces of North Korean industry.

Screen Shot 2015-01-21 at 7.35.26 AM

[The massive Musan mine. The yellow line on the left is the border with China]

In a follow-up report, the Daily NK now blames electricity shortages and a price dispute with China for plans by North Korea to lay off 10,000 of the 23,000 workers at Musan. The decision isn’t going over well with the workers:

For most, the focal concern is what happens next, as no jobs are guaranteed to those laid off. “Officials at the mine may say that they’re struggling with deciding on whose names to add to the list, and workers are irate, saying that ‘they can’t get away with this!’” the source said, noting that the surrounding village has been cast into a state of “unrest” because of the cutbacks.

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Hard times for North Korean mines, and miners

Please pardon me for taking a few days of rest with my family during the holidays. I’ll have much to say about The Interview, Nate Thayer’s intrepid reporting on the AP, and other exigent matters after we’re all played out on Legos and board games. Meanwhile, I have a few posts that I’d written last weekend and had planned to publish when North Korea hit the front pages. Here is the first of them.

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A series of possibly conflicting reports from North Korea’s outer provinces claims that North Korea’s mining industry is under unusual strain, due to commodity price disputes with China, or due to drought causing a lack of hydroelectric power to pump water and run hoists. Despite promises of ten-fold wage increases for miners, those increases have failed to materialize, and the payment of baseline wages is unsteady:

“These days, because of a dispute over prices with China, iron ore exports have been halted, and in many cases salaries go unpaid,” the source said. “With operations suspended at the mine due to the extreme power shortage in the country, people are worried that they won’t even receive their 30,000 KPW.” [Daily NK]

Yet copper demand has risen … due to a “recent order for copper to produce bronze statues of the son and father Kims all across the country.” Imagine that.

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What if the capitalist North Korea is just as bad as the communist North Korea?

There are many reasons why the Sunshine Policy failed, most of them rooted in the character of the men who rule in Pyongyang, and in the character of the men in Seoul who conceived and executed it. And in that conception, the flaw that was obvious to some of us from the very beginning was that Sunshine — and its surviving derivatives — invested its monotheistic faith in economic reform, yet in practice (and to a large extent, in theory, too) it was agnostic about political reform and disarmament.

I have always held something closer to the opposite priorities. Personally, I believe that capitalism, with just enough regulation to maintain a peaceful society, is a superior economic system to any form of statism, but I’m not messianic or Hegelian about it, as long as the system doesn’t deny its people the right to live. Of course, North Korea does deny its people the right to live, but things like privatizing agriculture and local markets have never been the principal focus of Sunshine advocates, either. They have always invested their passion in top-down capitalism — specifically, projects like Kaesong, Kumgang, and any sign that the regime was interested in trade and money.

Which, of course, it has been all along. Pyongyang has consistently allowed just enough trade to feed, equip, and maintain the military, and buy swag for the elite.

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Of fools and their money: Volvo sold North Korea 1,000 cars. On credit.

As a tool of economic isolation, North Korea’s business ethics have proven to be far more effective than U.N. sanctions.

See also Yang Bin, Senator Robert Torricelli and David Chang, Chung Mong Hun, Nigel Cowie, Roh Jeong-Ho, Albert Yeung Sau Shing and the Emperor Group, the Xiyang Group, and Lloyd’s of London. There’s actually a whole market in North Korea’s defaulted sovereign debt “involving more than 100 banks from 17 countries” dating back to the 1970s and 1980s.

And still, the lemmings keep coming.

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RFA: N. Korea tells overseas trade reps not to use the internet

In our latest of edition of North Korea Perestroika Watch, Radio Free Asia, citing identified sources speaking on condition of anonymity, reports that Pyongyang has instructed its overseas money-men to stop using the internet. The regime is even threatening to seize their work and personal laptaps to enforce the order. The trade workers tell RFA that the order, which even includes the use of e-mail, is impeding their ability to do their jobs and earn foreign currency.

A source living in China along the border with North Korea said the order was issued verbally by senior officials in Pyongyang recently. It is causing great inconvenience to the trade officials, most of whom are based in China with others living in Europe, Russia, and Africa, the source said.

“The order discouraging trade workers abroad from using the Internet by the North Korean government is actually a warning to not [disseminate] outside information,” said the source, who is linked to trading of goods with North Korea. “Trade workers abroad are used to contacting the North Korean authorities at home by email,” the source said. [Radio Free Asia]

According to the report, most of the North Koreans overseas save enough to buy laptops, which they then use to access South Korean web sites.

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N. Korea Perestroika Watch: Man executed for calling China

The Daily NK provides us some updates on Kim Jong Un’s ongoing crackdown on unauthorized contact with the outside world, via sources in North Hamgyeong Province, in the far northeast:

The North Korean authorities recently added five extra clauses to Article 60 of the country’s criminal code, which pertains to attempts to overthrow the state. The additional clauses codify harsh punishments for acts including illicit communication with the outside world, which could in principle now incur the death penalty. [….]

The newly re-codified offenses include: ? Illegal phone contact with foreigners, including South Koreans; ? Viewing South Korean dramas or DVDs and listening to [foreign] radio broadcasts; ? Using or dealing in drugs; ? Transnational human and sex trafficking; and ? Aiding and abetting defectors and leaking state secrets.

In criminal code revisions made in mid-May of last year, harsh punishments were decreed for a loose basket of acts deemed to be seditious, including political agitation, rioting, and public demonstration. Sedition was one of a litany of charges thrown at Kim Jong Eun’s uncle Jang Song Taek before his execution in December last year.

If North Korea is as stable as some “experts” suggest it is, then why is it necessary for its government to raise the penalties for such unthinkable acts as “political agitation, rioting, and public demonstration?” In fact, we’ve seen fragmentary reports of demonstrations in North Korea in the past, mostly by female traders protesting market restrictions.

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And now, a brief Marxist-style criticism of North Korea’s class struggle and internal contradictions (Updated)

Yonhap reports that North Korea has cut its grain imports from China by more than in half in the first quarter of this year “due to an increase in the country’s grain production last year.” A fall in market prices for corn corroborates that there is a greater supply of corn than usual; ordinarily, spring is the leanest time of year for poor North Koreans.

Despite Pyongyang’s decision to buy and import less grain, the World Food Program, which recently found that 84% of North Korean households have borderline or poor food consumption, continues to ask foreign donors to contribute $200 million to a program intended to feed the people Kim Jong Un won’t. (Humanitarian aid accounted for 95% of U.S. exports to North Korea, which also rose sharply last year.) So, either the WFP is overestimating hunger and should reevaluate its aid programs, or Pyongyang is accepting — and gaming — international aid to allow it to fund other priorities (an allegation that has been made before by others, here). It’s also possible that both alternatives are true.

Just in case you’re tempted to say that the drop in food imports means China is cracking down on North Korea, trade statistics released earlier this month by the Korea International Trade Association show that “North Korea exported 16.5 million tons of anthracite [coal] to China in 2013 … a year-on-year increase of 39.7%.

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North Korea’s circular firing squad

The reaper has come for two more key North Korean diplomats:

South Korea’s Yonhap news agency said that Pak Kwang-Chol, an associate of the young supremo’s uncle and political regent Jang Song-Thaek, was seen returning home after making a brief stopover in Beijing. The envoy and his wife were reportedly escorted by North Korean officials onto a flight to Pyongyang.

Sweden is an influential diplomatic player in Pyongyang, AFP said. Since the United States and North Korea have no diplomatic ties, the Swedish Embassy represents US interests in the country, acting as a kind of go-between. [link]

And this:

Hong Yong, the North’s deputy permanent delegate to UNESCO, and his wife were spotted at Beijing airport on Monday before taking the flight to Pyongyang, South Korea’s Yonhap news agency said. Hong, one of Jang’s associates, took the post only six months ago, it said, quoting a diplomatic source in Beijing. [AFP]

Pyongyang had previously recalled its ambassadors to Malaysia and Cuba, presumably also as part of the purge. North Korea has historically used Malaysian banks for money laundering, and Cuba has recently emerged as a North Korean arms supplier.

In addition, the Joongang Ilbo now reports that “two Workers’ Party executives, two cabinet members, two soldiers and one corporate manager” (a total of seven others) were also executed with Jang.

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North Korea’s overseas money men, called home, go to ground instead

After the news broke that Jang Song Thaek has been purged, The Daily NK reported that the regime was summoning party cadres from other parts of North Korea to Pyongyang. Now, new reports tell us that North Koreans in China are also being called back, possibly to be purged themselves. The Joongang Ilbo carries a fascinating interview with Lee Keum-Ryong, a defector and Free North Korea Radio correspondent, and obviously a very brave man. Lee defied the risk of abduction, or perhaps a curbside injection of neostigmine bromide, to get close to many of these North Koreans in Beijing. He reports that many of them have since vanished, but not all of them went home.

“I went to an office building where North Korean officials in the business of trade, whom I have personally known for some years, used to work. Stuff had been removed from all three rooms and [North Korean] strangers were standing guard. I waited for hours for North Korean officials to show up, but they didn’t. A source in China told me ‘a whole group of team members seemed to have disappeared’ and those who were standing guard at the office were an arrest squad [sent from Pyongyang].

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Let them drink beer: Kim Jong Un’s North Korea, where Orwell meets South Park

This week, the U.N. gave the North Korean government another million dollars for flood disaster aid to North Korea. Last month, the U.N. World Food Program appealed for $98 million to feed hungry North Koreans. Earlier this year, European NGOs blamed international sanctions for their difficulties paying for their operations in North Korea. And yet somehow, Kim Jong Un has found plenty of grain for brewing beer:

North Korea completed construction of a brand new brewery in Haeju city that has up-to-date production facilities, the communist country’s leading newspaper said Thursday.

The Rodong Sinmun, an organ of the ruling Workers’ Party of Korea, said the brewery has fermentation, filtering, cold storage and bottling facilities that will allow it to produce alcoholic beverages to benefit people. [Yonhap]

This also happened in Animal FarmIt’s as if the North Koreans read Orwell and mistook parody for utopia.

You get similar ideas from this picture of Kim Jong Un supervising the construction of what richly deserves to be known as Cartmanland Pyongyang, “a waterpark, complete with slides, a wave machine and a restaurant.”

North Korean leader Kim Jong-Un inspects the construction site of the Munsu Swimming Complex

I’m not sure that oligarchical hedonism equates to capitalism, but it sure isn’t socialism. There’s no denying that this is a change from the image that the first two Kim emperors displayed, but is it a good change?

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New Focus on North Korea’s changing economy

They paint a vivid picture of an economy in a halting transition:

* For better or for worse, loan sharks who trade in currency and their connections to the regime have become an important part of the new economy.

* How businessmen make donations to regime projects to buy indulgences — letters of appreciation — from the regime, and use them as amulets against its enforcers of dependency.

* The decay of the Public Distribution System (PDS) continues to progress.  Teachers has been among the most favored recipients of state rations until recently.  Now, they moonlight as traders in the jangmadang to get by.  Who in North Korea still lives on the PDS?  From what I’ve read recently, it seems to be going the way of the pay phone, even in Pyongyang.

* There is also a fascinating report about the Ryugyong Corporation, which controls North Korea’s illicit drug business at all levels of vertical integration.  The report paints a surprisingly nuanced view of how Kim Jong Il would control these illicit activities overseas.  There was more negotiation and less outright coercion than I would have thought, and the report seems credible and well-sourced, although the estimate of “tens of thousands” of dollars a year seems implausibly low.

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Best Graphics of the Week (So Far)

The first shows the persistence of regionalism, in living color.

Via Yonhap; hat tip to Step Haggard and Jaesung Ryu.

If I’m sitting in Pyongyang right now — and also, if I’m a malignant narcissist with a bloated army — I’m thinking the people who voted this way must be punished.  One sense of ill foreboding has been replaced by another.

The second graphic is a newer, higher resolution image of the Koreas at night.

Don’t stop there.  The full-resolution version is simply stunning.

So is it time for me to update my masthead image yet?  Things have hardly changed in nearly 20 years.  Aside from the fact that there are more lights on some parts of the Sea of Japan than on land in North Korea, it struck me that those fishermen in Chongjin sure do venture far out to sea at night.  It must take days to get there.  And even then, the lights on their boats are dimmer than those on the South Korean boats.

 

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Reform Watch: North Korea can now afford to bury its orphans in Snoopy T-shirts

As a vibrant market economy arises from an underdeveloped one, it does not lift all boats as a rising tide would.  Some get very rich fast, and some stay very poor.  Such periods of rapid development are politically risky times, as uneducated masses are drawn away from their hardscrabble farm lives and packed into factory dormitories, slums, and shanty towns in the cities.  Those places become hothouses of envy and radicalism that can bring down the political systems in which wealth and poverty coexist uneasily.  It’s no coincidence that Marxist ideas rose as societies industrialized, and waned as most of the world entered a post-industrial phase.   Marxism is an ideology built around an emotion — envy.  To survive the political turbulence of industrialization, a strong state must have the means and the will to suppress lawlessness, but it must also inspire enough faith in The System that the masses harbor real hope that their lives will continue to improve under it.

On the surface, the coexistence of wealth and poverty in North Korea can resemble what we see in developing societies.  But in what sense can it be said that North Korea, a place where the government wraps an iron fist around most commerce and predetermines the potential of its citizens before they’re even born, is “developing?”  Are we really seeing the rise of a capitalist class in Pyongyang, or is the same old elite-class hoarding just becoming more ostentatious?

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North Korean Reform Watch 6

We don’t know how extensive North Korea’s agricultural reforms are meant to be, but we do know that North Korea wants us to think that it’s instituting big reforms in its agricultural sector, because it took the AP’s Jean Lee on a show tour of a collective where the “farmers” were primed to tell her it was so. Is it too cynical of me to tend to disbelieve any fact that North Korea wants me to believe is true? Props to Lee for her hard work at getting this sentence past her “colleagues” at KCNA:

North Korea has a per capita GDP of $1,800 per year, according to the U.S. State Department, far below that of its neighbors in Northeast Asia, and its rocky, mountainous terrain and history of natural disasters has long challenged the Kim regime to provide enough food.

Yes, that is all! Nineteen consecutive years of drought-slash-flood that for some reason target all parts of North Korea, exclusively, but which never seem to impede the flow of rice or Omega watches to Pyongyang! I love officially approved news, don’t you?

Meanwhile, we are reminded again why we ought to be skeptical of all that optimistic speculation, like this example from The New York Times.

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