State-run factories in Pyongsong languish as private investors cash in

Interior of Taedonggang Battery Factory. Image: DPRK Today

North Korea’s nouveau riche, in Pyongsong, South Pyongan Province, are reported to be actively investing in commercial facilities. This comes as many of the state-run factories located in the provinces face difficulties due to a lack of raw materials and the failure to create demand for their products.

Daily NK sources based in South Pyongan Province reported on circumstances faced by three state-run factories in Pyongsong that stand in stark contrast to two commercial facilities being operated with money from private investors.

“The design and layout of Pyongsongwon is good and the operations are going well,” said the source, referring to a “comprehensive service [business] center” that was built in Pyongsong’s Undok-dong (neighborhood) in 2017. Pyongsongwon features a public bath, sauna, barbershop, restaurants, and stores, and was built with financing from a private investor who has been involved in currency-related business activities. The center remains popular among local residents.

“Trading companies like Taedonggang, Sogyong, Nakwon, and Moranbong are bringing in foreign goods from China and other places along with some domestic goods to sell here. The prices are cheaper than those in the markets, so it’s popular among locals,” the source continued, adding that “the railway station and the road that stretches from Pyongyang to Sunchon are both nearby, so the center functions a bit like a wholesale outlet.”

The Pyongsong Department Store is officially run by the Pyongsong Business Management Office, but in reality, individual investors (donju) and a number of trading companies are financing operations at the center and hiring their own sales staff. The city’s Business Management Office has essentially given these entities the right to operate their businesses at the center in exchange for fees, the source said.

North Korea amended its Enterprise Law in 2013 and 2015 to allow enterprises to raise their own funds. These amendments permit individuals (donju) to invest in state-run enterprises.

There appears to be an increasing number of enterprises and stores that are being directly invested in by donju. The North Korean authorities, who espouse support for socialism, do not officially acknowledge individual ownership rights or the right to own property. However, the reality on the ground is that some state-run enterprises and other state-owned organizations are, for all intents and purposes, owned by private individuals.

While commercial facilities directly owned by donju are sprouting up all over Pyongsong, some factories in the city are lacking supplies of raw materials while facing plummeting demand for their products, according to a separate source in the region, who cited the  the situation facing the Taedonggang Battery Factory, located in Pyongsong’s Pyongsong-dong.

“The factory makes around 5,000 car batteries per year, and the market demand was so high that it didn’t have any issues. From November last year, however, the factory’s production line was halted due to a problem with the supply of their raw materials,” he said. “In the end, workers at the factory were allocated land from the state to start potato farming this spring.”

The factory’s workers have been widely mobilized for farmwork due to the shutdown but they are also required to collect manure, with few other options available to earn a living.

“A paper factory in Pyongsong’s Songryong-dong produces workbook and packaging paper, but the quality of the paper has dropped significantly and there’s less demand for it now. The factory is also facing competition from Chinese paper manufacturers.”

The factory is reportedly making efforts to improve the quality of its products, but is facing difficulties because supplies of raw materials like rice straw and wood are unreliable. In addition, the factory has outdated technology and little in the way of funds. The second and third stories of the three-story factory are reportedly being used for private housing, while only the first floor is being used for manufacturing.

A separate source in Pyongnsong also reported that the Moranbong Clock Factory, which Kim Il Sung paid a visit to in the past, halted production in the 1990s due to economic difficulties. It later signed a contract with a Japanese company to produce small transformers, but the business ultimately failed and the factory has recently shut down. Although boasting a plaque honoring its historic visit from Kim Il Sung, the factory has since ceased all manufacturing activities and its machinery is rusting.

“The factory should have started manufacturing other products as soon as the demand for Moranbong watches dried up, but the factory was the only one of its kind and a site where Kim Il Sung had visited, so the managers didn’t have much freedom to change what they needed to. People are saying that the buildings of the landmark factory are just rotting,” he said.

“Hundreds of the factory workers don’t come to work and instead just fix bicycles or work as butchers at the markets. They come in once a month to the factory, but the factory administrator has no clue as to who works at the factory or not [as employees come and go infrequently].”