On February 27, Kim Jong-un and Donald Trump met in Hanoi for a second round of talks. While the U.S. aimed to set the terms, speed, and extent of North Korean denuclearization, North Korea sought an end to the sanctions imposed by the UN Security Council. Despite North Korean boasts that the country’s philosophy of self-reliance was holding up against the sanctions, the country’s economy was truly crippled.
According to ASIAPRESS reports from inside North Korea, it is not only the government and military that have been hit hard by the effects of the sanctions. From the poorest citizens to the wealthiest Pyongyang elite, life under the sanctions has been much more difficult for all levels of society.
"Trump is a fraud"
ASIAPRESS relies on a team of about 10 reporting partners living inside North Korea. One of the group, a man in his 40’s, called on February 16, the anniversary of Kim Jong-il’s birthday.
“We were very happy about the meeting with Trump last June. We thought that the sanctions would be lifted and that life would get better. But nothing has changed. The people here are angry because, while we have kept our promises to the United States as best as we can, Trump has broken his promises- condemning us to carry on like this. Party officials explain to us what happened at the summit this way.”
The reporting partner lives near the Chinese border in Musan County, North Hamgyong Province. The county’s main industry, iron ore production, came to a halt late last year when all exports to China were blocked. In accordance with the UN sanctions, China had banned imports of iron ore from North Korea.
Despite this, the partner says that, due partly to government propaganda, many residents blame the U.S. for their worsening lifestyles.
In January, a reporting partner living in another region of North Korea said, “Kim Jong-un needs to give up the nuclear weapons. Then the sanctions can soon be lifted. Nevertheless, people are saying that Trump is a fraud. We don’t expect anything to come from this next meeting with the United States.”
Foreign currency imports plunge...N. Korean exports to China fall off by 88%
In 2017, the Kim Jong-un regime focused on upgrading its nuclear weapon and missile programs. Over the course of the year, the regime conducted 17 ballistic missile tests and experimented on an atomic bomb with 10 times the strength of the one dropped on Hiroshima. In response, the U.N. Security Council, with the full support of China and Russia, stepped up economic sanctions with 4 new resolutions.
The real force behind the latest sanctions is China, with North Korea’s traditionally supportive neighbor responsible for more than 90% of its neighbor’s trade. According to statistics from China’s customs authorities, trade with North Korea declined sharply following implementation of the sanctions. North Korean exports to China amounted to only $220 million in 2018, down 88 percent from the previous year. In 2016, the year before sanctions were introduced, North Korean trade with China had amounted to about $2.6 billion. It can be estimated that the sanctions have deprived the regime of about 90 percent of its expected trade gains.
Economic sanctions by the UN Security Council against N. Korea
-① Exports of minerals, textiles, and seafood are banned.
-② North Korean workers may no longer be dispatched to work in foreign countries.
-③ Joint ventures with North Korea are prohibited. Existing businesses are to be eliminated.
-④ Exports of petroleum to North Korea are limited to less than 500,000 barrels per year- a nearly 90% reduction.
-⑤ Exports of industrial machinery and transport vehicles to North Korea are prohibited. Transferring large amounts of cash is also prohibited.
Information on the true extent of the damage to the North Korean economy is carefully guarded by the regime. With 90 percent of trade lost, however, the impact must have been severe.
To find out the exact impact of the sanctions, ASIAPRESS worked with reporting partners living in various regions of North Korea to investigate. Through actual visits to the iron mines, fishing ports, regional trade offices, and Pyongyang markets, reporting partners were able to uncover the true effects of the sanctions on the lives of the North Korean citizens they met. To smuggle this information out of the country, reporting partners were asked to cross the border into China, through both illegal and legal means. Other reports were given through calls on smuggled Chinese mobile phones.
As the investigation progressed, it became clear that there is rising chaos in North Korea.
North Korean exports drop further than predicted
Let’s return to Musan County. Musan is on the border with China, facing the Tumen River, with a nearby iron mine providing work for much of its 100,000-strong population. The closeness of this mine to the border is convenient, as most of the iron produced is traded at the border. According to statistics from 2017, iron ore exports to China in 2014 amounted to $211.9 million and, for 2016, $74.41 million. Iron provided not just for Musan. As the second most important national export, the industry was regarded as a crown jewel among North Korean state-owned enterprises.
Our local partner set out to investigate the situation in Musan, reporting back that, “All operations at the mine were suspended apart from a small amount of mining at the domestic steel mills. The company can’t afford gas for its vehicles, so it has been renting them out to local businesses in an effort to recoup some losses. Food distribution to mine workers was suspended in March of last year. In July, workers received 4-5 kilograms of Chinese rice but following that, they didn’t receive anything at all until October. There are many hungry workers who have gone off to look for paying work elsewhere.”
‘Job desertion’ now a major crisis
All adult men in North Korea must work at jobs assigned to them by the government. In the 1990’s, a famine led to the dissolution of the food distribution system and, due to skyrocketing inflation, wages at most enterprises lost their value entirely. Despite this, North Korean men still had to report for work at their state-assigned jobs, mostly for the government to maintain control over their daily lives and political thoughts.
Workers have to sign in at their offices and, each morning, the police checks attendance registers. The Musan mine was one such employer where attendance was checked daily. The difference though was that due to the mine’s success, it was able to continue providing food and wages to an estimated 10,000 workers. After the sanctions, however, the mine could no longer support its workers and many began to desert their posts.
Last July, the reporting partner visited the house of an acquaintance who works in the mine. He said that a policeman had came earlier to the house to force him to go to work.
“The policeman decided not to drag the friend away once he saw how destitute his house was. Workers who were deserting were going into the mountains to collect herbs and vegetables to sell or eat. Workers who were not deserting their posts couldn’t work anyway because they were too weak from the hunger.”
Musan County is designated as a ‘hardship area’, with residents given corn and Chinese dried noodles. The region is on the cusp of a humanitarian crisis. Nevertheless, the authorities have refused to relax their control, prioritizing societal order over the lives of its citizens. Starting last fall, those who were caught repeatedly deserted their posts were sent off to labor camps.
In February, the local partner reported, “Workers at the mine have nothing to do even when they attend their posts. So they are being pressed into ‘construction brigades’ and sent to help with construction at a hydroelectric plant on the East Coast.”
The ‘construction brigades’ are units set up to lend labor to national construction projects, with members conscripted from state-owned enterprises and youth organizations.
Says the reporting partner on life in a construction brigade, “Food is provided on-site but the work is unpaid, with shifts lasting between 3-4 months. Everyone tries to forge medical certificates to avoid conscription, but it’s not easy.”
Pyongyang’s privileged elite feel the pressure
What about the impact of the sanctions in Pyongyang, where the rich and privileged are concentrated?
A Chinese reporting partner for ASIAPRESS met with a Pyongyang businessman in China last November to learn more about the situation in the capital. The businessmen visits China several times a year to buy wallets and bags for resale in Pyongyang.
Meeting in a restaurant late at night to avoid prying eyes, the businessman said, “There are a lot of export companies that have gone bankrupt. Many of the newly-rich, private investors and traditionally wealthy elite are poor now. Especially those that were involved in trading coal and other minerals. Sales are slow in Pyongyang as the flow of money is totally blocked. Many vendors have stopped coming to the market altogether because they will make a loss if they have to pay the tax for vendors. My acquaintances can no longer afford to take taxis because of their loss in business. All in all, it can be said that the income of common people has been cut by about half.”
Who are the ‘newly-rich private investors’ that the Pyongyang businessman referred to and how did they come to prominence? This can be best explained by examining North Korea’s top foreign currency earner, the coal industry.
There are many coal mines in North Korea where high-quality anthracite is excavated. Since the 1980’s, however, operations at these sites were significantly reduced due to the country’s crippled economy. In the early 2000’s, however, operations at these sites began to return to their original productivity thanks to investment from new sources as, for the first time, private individuals were allowed to invest in the market economy. These private investors, labeled the kiji, brought back mining at neglected sites across the country, efficiently unearthing iron before selling it on to state-authorized trading companies for export to China.
Since private companies are illegal in North Korea, kiji used bribes to secure official permits which would allow them to operate under the banner of state-owned enterprises. In practical terms, however, they were private companies, usually with 30-200 employees. Bribes and wages for workers were the only costs of entry into the market, with profits going straight into the pockets of the kiji. These private enterprises would go on to have great success thanks to a simultaneous boom in coal exports to China, with the kiji becoming subjects of much envy. Kiji would repeat this success in various other fields, reaping profits in the fishing, transportation, and gold mining industries.
In 2016, before the sanctions were tightened, North Korea exported about $11.8 billion worth of coal to China. This amounted to 45 percent of all exports to China. One year later, however, North Korea would lose all of this trade, with China abiding by the UN Security Council’s ban on coal imports from the country.
It was not just coal miners or kiji who felt the impact of this ban. Entire towns, such as those in Musan County, are set up to support the mining industry, with mechanics, electricians, shippers, and other professions all depending upon work at the mines to support their businesses as well. All in all, it can be estimated that close to a million people are engaged in coal-related businesses across the country. Now, with coal exports stopped, these people’s incomes have plummeted as well.
A reporting partner in South Pyongan Province, where large coal mines are also located, described how, as the sanctions have taken effect, markets around the coal mines have become stagnant, with the flow of goods and money totally blocked. In addition, the partner reported that many of the private companies which were running the mines have gone bankrupt and have simply disappeared.
The reporting partner described local sentiment, further stating, “The residents say that sanctions have turned the kiji into beggars and that Kim Jong-un has had to approach South Korea because of the loss of revenue from coal. That’s the gossip in the streets.”
Kim Jong-un’s treasury takes a hit
Many of the North's trade companies are under the administration of the North Korean People's Army, the Workers' Party, and the Ministry of Security (police). Among these administrative bodies, however, the most important and powerful is an organization called “Room 39”. This special office is responsible for raising funds for the regime through various trade and financial operations. It is also in charge of dispatching workers to foreign countries.
So, how is Room 39 being impacted by the sanctions? To find out, ASIAPRESS began an investigation in March of last year with the help of a reporting partner living in the northern region of the country. As the reporting partner is a member of the Worker’s Party and a mid-level executive in a small company, he has several connections in the business world that served to shed some light on the dealings of the secretive organization.
Under Room 39 there are many bureaus, one of which is the “Paradise” Guidance Bureau. It is this bureau that oversees the “Peony Company”, a company headquartered in Pyongyang and with a branch office in Chongjin City, the third largest city in North Korea. Close to the Chinese border and facing the East Sea, the company’s branch office deals with exporting seafood, minerals, and clothing to China. In addition, the company expanded its operations to become a distribution hub for imported Chinese products to be sent across the country. Beginning his research, the reporting partner traveled to Chongjin to learn more about this particular enterprise of Room 39.
In Chongjin, the reporting partner was able to meet with a senior employee of the company, finding out that the company’s Chongjin operations had been suspended, with the company’s office rented out to a local merchant for use as a warehouse. In addition, the reporting partner was told that the branch office had 35 full-time employees, with many sub-contracted staff as well. These subcontractors, however, were employed solely to collect medicinal herbs to be exported to China and many of them were let go after the sanctions took effect.
The senior employee told the reporting partner, "Up until 2018, I would receive 50 kilograms of white rice and 500 Chinese yuan (about 80,000 South Korean won) per month. As official trade with China is totally off the cards, I have an arrangement with a chinese merchant to sell luxury Chinese-made products such as TVs, electric rice cookers, water tanks, and beds to North Korea’s wealthy elite on his behalf. I have to give back 1000 Chinese yuan (about 160,000 South Korean won) of the profits each month to the Chinese merchant. I am allowed to keep any profit made over that but if I do not make 1000 yuan in a month, I will lose the job.”
Rising discontent among Pyongyang’s privileged class
Profits from trade with China go directly to the regime’s treasury and are distributed amongst the Pyongyang elite. When trade is brought to a halt, this privileged class feels the pressure, as the exploitative system it relies upon to sustain itself collapses.
Thanks to a Chinese reporting partner for ASIAPRESS, we were able to hear about the situation firsthand from a Pyongyang elite, a senior executive for a state trading company. Meeting the executive in China, the reporting partner asked, “What do you suppose will happen next?”
The executive answered briefly, “It goes without saying that trade right now is difficult. It is very hard now for the high-ranking officials in Pyongyang. Though life is tough, local people can make ends meet by doing menial day jobs. The higher-ups, on the other hand, have lost their only source of income. If this continues, it could become a big problem. There is a lot of discontent."
The executive didn’t elaborate on what he meant by ‘big problem’. As a North Korean with permission to conduct business abroad, there is a lot of trust placed in him by the regime. His lifestyle is only guaranteed if he remains loyal to Kim Jong-un. But if, as the man says, discontent is on the rise, does it mean that Pyongyang’s loyal elite will lose their faith?
The sanctions are not just keeping money out of the hands of North Korean citizens though. The regime too is feeling the pressure and is struggling to maintain its various programs and policies. Although it may present only a small part of the greater picture, we can clearly see evidence of this by studying the North Korean government’s failing national programs, listed below:
▪ Distribution of new national ID cards, which began in late 2017, took until February 2019 to complete.
▪ The tradition of distributing special rations to celebrate holidays and the birthdays of its leaders has been discontinued since the anniversary of Kim Il-sung’s birthday in April of last year.
▪ Construction of the Samjiyeon Special Tourist Zone at the foot of Mt. Baekdu, labeled by Kim Jong-un as a top priority national project, has been delayed due to financial difficulties. Due to sanctions, the project ran out of rebar and other necessary materials.
▪ Due to financial difficulties and soaring fuel prices, military units have been forced to use ox-drawn carts or charcoal-fueled vehicles to transport supplies.
▪ From November last year, the electricity supply for residents across vast northern regions has been cut off almost entirely.
Predicted inflation does not occur...but people’s suffering is on the rise
When sanctions were strengthened at the end of 2017, it was anticipated that the North Korean economy would experience heavy inflation. Specifically, the value of the North Korean won was expected to lose its value due to the lack of foreign currency imports. Experts believed that the country’s economy, like that of Zimbabwe and Venezuela before it, could be plunged into chaos due to hyperinflation.
This was not to be, however. Apart from fluctuations in the prices of gasoline and diesel oil, the value of North Korea’s currency remained relatively stable, with only a 20-30 percent increase in the price of food and other commodities reported.
This does not mean to say, though, that North Koreans are living comfortably or that the North Korean economy is doing well. Since November of last year, electricity has been reliably supplied to very few cities outside of Pyongyang. Residents outside of the capital no longer refer to the problem as a ‘power outage’; with no power being provided at all, they say their cities have been ‘powered down’. In addition to the lack of electricity, residents have to deal with demands from authorities for cash and other resources.
The North Korean government frequently extorts resources and cash from citizens in order to complete road repairs, school maintenance, military upgrades, and various other construction projects. Now, with sanctions tightening, the regime has begun to demand even more from the local population.
A reporting partner explained the increasing burden, “The state extorts about 100 Chinese yuan (16,000 South Korean won) from us each month.” This total represents 30-50 percent of an average household’s monthly income.
In addition, starting from December of last year, authorities began forcing all households to enroll in a state-run insurance program. A reporting partner in Yanggang Province said, "We are told to enroll in the insurance program as a show of patriotism. We are not told any information about the contents of the insurance plan or its supposed benefits. We know the state has no money, so it has to take it from us citizens.”
Despite the recent hardship, the reporting partner maintains a strong sense of perspective, saying, "It's hard to earn a lot of money, but there's been no word of people starving to death anywhere. All of us common people have taken to the markets and found a way to make ends meet somehow. These days, there are not people dying in North Korea of starvation like there was before.”
