Increase in North Korea-manufactured products driving domestic growth

North Korea can now produce a considerable amount of food and light industrial products. This is the result of the country’s move toward practical policies like giving farms and enterprises some degree of autonomy, a Seoul-based North Korea analyst argues.

“The products North Korea produces are still limited to food and light industrial products, but the increase in domestic production means that the country’s agricultural capacity is playing a fundamental role,” said Korea Institute of National Unification (KINU) analyst Jeong Euni (pictured above) during an interview with Daily NK.

“North Korea’s increase in domestic production cannot be explained exclusively by an influx of external source materials […] The internal driver of all this may be the ‘pojon damdangje’ (literally, ‘vegetable garden responsibility system,’ also known as the field management system) and the Socialist Enterprise Responsibility System,” Jeong added.

Pojon damdangje was an agricultural reform measure that shifted autonomy over  agricultural products from the smallest units at cooperative farms to family units. North Korea also introduced the Socialist Corporate Responsibility Management System, which provided some degree of autonomy to enterprises in regards to production and distribution.

“These systems are having a considerable impact,” said Jeong.

“China also saw an increase in production from agricultural reforms when it began reforms and opening in the late 1970s, and now North Korea appears to be following in China’s footsteps.”

Jong also talked about the changes in North Korea she witnessed when she recently visited the Sino-DPRK border region. She saw a huge increase in newly-constructed apartments in the region near Hyesan and other cities, and said that this suggests that North Korea’s real estate market is burgeoning.

“I saw newly constructed apartments and evidence of reconstruction [in the area], and even improvements made to farmhouses,” Jeong recalled.

“North Korea does not have clear laws pertaining to the sale of ownership or the construction of houses by individuals, but it appears the country is moving to legalize all of this given the implementation of market-friendly policies.”

The full interview with Jeong follows.

Daily NK (DNK): What kinds of changes did you see on your recent visit to the Sino-DPRK border region?

Jeong: There were a number of surprises during my trip to China. In the past, there were small plots of farmland spread out all over the place, but on this trip I saw lots of green forested areas and evidence that the small plots are disappearing. There were also a lot of small farms raising cows, horses and goats. I saw a lot of newly built apartments in Hyesan and other parts of Ryanggang Province, and evidence of the reconstruction of many buildings. And a lot of bridges that have been built across the Sino-DPRK border.

In the past, these bridges were mainly constructed for security or political reasons. Now, however, they have shifted to becoming drivers of economic growth, including tourism between the two countries. I also saw a lot of trains, motorcycles, taxis and other modes of transportation during my time there.

DNK: Some North Korea watchers say that US-led sanctions toward North Korea are a major roadblock for North Korea’s economic development. Do you believe that North Korea’s economy is really impacted a great deal by the sanctions?

Jeong: The evidence that sanctions are greatly impacting the North Korean economy has been collected through Sino-DPRK trade statistics and interviews with Chinese business people who conduct business with North Korea. Given that these statistics and interviews generally give the impression that Sino-DPRK trade is decreasing, you could be excused for believing that the North Korean economy is getting considerably worse. However, from my perspective, North Korea’s real estate market is growing and in particular, there has been a lot of growth in the number of food and light industrial products being produced in the country.

If you look at North Korean business catalogs published in 2018, they are full of all kinds of candies and a lot of other products. I think it’s difficult to explain the increase in North Korea’s domestic production of these products just by pointing to external source materials and products entering the country. There must be domestic drivers [to the increase in production] as well.

These drivers are likely to be the pojon damdangjae and Socialist Responsibility Management System. Compared to China, North Korea’s pojon damdangjae increased the number of family-based (production) units and reduced the scale of each individual unit. That being said, North Korea does not recognize private ownership of land, just their right to harvest the land. Despite this situation, there is circumstantial evidence that agricultural production is increasing and this increase has provided the basis for an increase in the production of food and light industrial products. Moreover, the Socialist Corporate Responsible Management System provides a great deal of autonomy to enterprises, with the exception of critical industries like mining operations in Musan and co-op enterprises.

I think that the system is showing results by allowing enterprises to choose how much they will produce, what they will produce, and how much they will sell their products for. China also saw an increase in production from agricultural reforms when it started reforms and opening in the late 1970s, and now North Korea appears to be following in China’s footsteps.

DNK: Kim Jong Un is continuing to implement very practical economic reform measures. Pojon damdangjae and the Socialist Enterprise Responsibility System both seem to have been implemented to introduce market economy elements to the existing socialist-planned economy. Are these systems now a permanent part of North Korea’s economy?

Jeong: The North Korean state is actively implementing these systems. North Korean marketization in the 1990s led to the unavoidable implementation of these systems due to the collapse of the public distribution system (PDS). In the Kim Jong Un-era, however, the state has added elements of the market economy to the existing socialist system and this is leading to the expansion of marketization. Kim Jong Un’s criticism of government officials during his visit to Sinuiju and enterprises in other places was published in the Rodong Sinmun. He called for the proactive implementation of the Socialist Corporate Responsible Management System, but found that the policy was not being implemented actively by lower-level officials. He was expressing concern over that situation, in my view.  

DNK: Daily NK has reported several times on the revitalization of North Korea’s real estate market. KOTRA also recently published a report that said the real estate market is rapidly growing in Pyongyang, Nampo, Kaesong, Chungjin, Sinuiju and Rason. What are your views?

Jeong: Some observers are suspicious of analysis concerning the growth of the real estate market in specific regions because they believe such growth is localized – in other words, it doesn’t reflect a nationwide trend. However, if you travel throughout the Sino-DPRK border region you can see how much the real estate market has changed since 2-3 years ago. Farmhouses have been remodeled and improved, and newly-developing cities look much more modern [and are brighter in color] and have more new buildings than in the past.

DNK: What is the fundamental driver of the revitalization of North Korea’s real estate market?

Jeong: There are a number of factors. As the PDS collapsed in the 1990s, North Korean workers wandered around trying to find food and the housing market received a lift as the empty houses these workers left behind were sold at rock-bottom prices. In the 2000s, as marketization took off, people who earned their money through business drove the increase in demand for new houses. Chinese investment has played a part in all this, and the state has also played a major part in the the real estate market boon. During the Kim Jong Un-era, several streets like Mirae Scientists’ Street, Changjon Street and Ryomyong Street have been built.

The state is putting a lot of investment into modernizing these streets. The state has used capital from state-run enterprises and individuals when funds were insufficient, and there is an aspect to all this where the state is strategically revitalizing the real estate market through government policies. There are no clear legal provisions concerning the buying and selling of ownership or the construction of houses by individuals; however, it appears the state is moving in that direction. I get the impression that North Korea is implementing market-friendly improvements similar to those in South Korea.

DNK: This would then mean that the North Korean authorities are leading the revitalization of the country’s real estate market.

Jeong: Yes. Popular conceptions [of wealth] have also changed a lot. People used to judge whether someone was poor or not by what they wore, and what kind of side dishes that ate at home. Now it’s what kind of house one lives in. How many ordinary North Koreans could spend that type of money in the past? People feel very strongly about obtaining ownership over their houses. In the past, there was a lot of punishment dealt out to those constructing or buying and selling houses.

This type of punishment has now disappeared. The real estate industry can rake in huge profits, so government officials are very much involved in it. The state also believes it can enact macroeconomic changes through construction projects, so it allows individual or enterprise investors to take part in them. This means that the state has allowed the practices to become quasi-legal. I believe that the process for making this all completely legal has already started.

DNK: It seems that North Korea is changing rapidly. Could you tell us what you think the biggest change in North Korea’s economy is right now?

Jeong: This would be the drastic increase in the number of products North Korea produces domestically. These are still limited to food products and those produced by light industrial enterprises; however, that there is such an increase in production means that the country’s agricultural capacity can handle it. Moreover, the mindset of North Korea’s business people is changing a lot. The packing materials and packing designs of North Korean cookies and chocolate products have diversified. Likewise, they are putting out a lot of advertising, which reflects their focus on selling as much product as possible, and they are continuing to develop new products. In China’s case, economic reforms at enterprises and in the cities were conducted 7-8 years after agricultural reforms. North Korea already seems to be on the same track as China was.

DNK: Many people are interested in whether North Korea will conduct reforms and opening. What’s your view?

The major difference between China, Vietnam and other countries with North Korea is that North Korea has successful precedents to refer to. I think that rather than talking about North Korea following the Chinese or Vietnamese-style of economic reforms, the country needs to reference these precedents in a way that fits with the conditions in the country. People talk about North Korea’s selective implementation of reforms and opening – like it has erected a “mosquito net” – but we can already see a lot of signs of opening through the construction of the country’s special economic zones (SEZs).

It took 10-20 years for China to develop Shenzen. North Korea, however, appears to be designating several places as SEZs and throwing investment at them all at once. More thought needs to be made on the argument about whether North Korea will [blindly] follow the reforms and opening policies of a particular country [or implement reforms and opening in a way unique to its own economic conditions].  

Print Friendly, PDF & Email
SHARE