Authorities shake down trading companies for extra loyalty funds

Seol Song Ah  |  2016-04-19 15:42
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To cover the financial costs of the recent celebrations for Kim Il Sungs birthday (4.15) and the upcoming Party Congress in May, North Korean authorities have demanded trading companies make loyalty fund contributions of 3,000 USD each. To meet these demands, trading companies have been buying up large quantities of goods such as fruit and importing it from China for sale to North Koreas nouveau riche (the donju).  

In a telephone conversation with Daily NK on April 15, a source in North Pyongan Province noted that, Earlier today (on April 15), the authorities issued an order stipulating that trading companies are required to contribute loyalty funds of 3,000 USD. Similar loyalty funds are due every year, but this year extra is being demanded because of the Party Congress. As a result of this, trading companies have been worrying about their financial ability to continue operations after submitting the additional sum.

Additional sources in the same province as well as South Pyongan Province and Pyongyang confirmed this news.

The nominal requirement is 3,000 USD, but its openly said that it will take at least 5,000 USD for companies to retain their trading rights, and at least 10,000 USD to expand those rights, the source stated. Firms that are unable to pay their loyalty funds run the risk of losing their permission to trade, so many are considering the shakedown to be a threat to their very survival.   

The North Korean authorities frequently seek to induce a form of loyalty competition between trading companies by demanding that each firm contribute significant amounts of foreign currency prior to major national holidays. Those that pay up higher sums are invariably guaranteed permission to operate.

For this reason, many trading companies have increased their import of daily goods and food products, neither of which are subject to the harsh round of unilateral and multilateral sanctions imposed on North Korea in early March in response to its fourth nuclear test and rocket launch. In particular, fruit such as apples is not included on the list of sanctioned items, so these trading companies can reliably earn foreign currency by buying and selling them.

This year, fruit from domestic farms hasn't hit the North Korean market yet, so its considered a smart business practice to import from China and capitalize on the demand, the source added. These days, container trucks packed with over 70 tons of apple boxes have been coming in from China through the Sinuiju customs office.    

Wholesalers are waiting to pick up the cargo as soon as the trucks arrive in Sinuiju. In order to capitalize on this timely opportunity, Sinuiju donju wait each evening near the customs office and immediately pay for the goods in foreign currency to dominate the supply chain, he explained.

North Korean trading companies can buy a 25 kg box of apples for approximately 80-100 RMB (104,000-130,000 KPW/ 13-16 USD) in China. They can then sell the same boxes on to the donju for approximately 120-150 RMB (156,000-195,000 KPW/ 20-24 USD). Some donju are able to sell their imported fruit for twice the initial cost to market vendors, and occasionally sell it directly to state-run factories that are preparing gifts for their employees for the upcoming holidays.

Right now the market is so flooded with Chinese apples that vendors are even selling one apiece to customers who dont have a lot of money, he said. It seems like imported fruits are going to dominate the markets until North Koreas first fruits of the year become available around July. 

*Translated by Jonathan Corrado
*Edited by Lee Farrand

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