Authorities shake down trading companies for extra loyalty funds

To cover the financial costs of the recent
celebrations for Kim Il Sung’s 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 Korea’s 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
it’s 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 it’s 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 don’t
have a lot of money,” he said. “It seems like imported fruits are going
to dominate the markets until North Korea’s first fruits of the year become
available around July.”

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