The Hidden World of NK Commerce

Kim Il Sungs ageless promise of white rice and meat soup for every
household serves only to symbolize the extent and history of food insecurity in
North Korea. It
s 2014 and yet the problem remains: Kim Jong Eun addressed it in his New
Year
s Address, saying that standards of living must be elevated through
increased food production.

Alas, it is widely agreed that standards of living wont rise
significantly or robustly without greater economic liberalization than has
occurred to date. North Korea
s anachronistic economic system cannot provide a solution to shortages
of food and consumer goods.

Nonetheless, the regime continues to buy off a proportion of the
citizenry with gifts on national holidays and just enough distribution to
suggest that improvement might be around the proverbial corner.

Daily NK recently interviewed Hwang Cheol Min, who left North Korea in
2012 after eight years as manager of a commercial administration office in
North Pyongan Province. He gave the latest details on the distribution of
consumer goods and other products.

-What
is the function of administration offices such as yours?

It’s the agency that manages the
distribution of goods in a given city or county. Goods produced by factories in
accordance with the national economic plan are transferred to
them
through provincial, municipal, and county wholesalers, and we then supply
those goods
to state-owned stores.

-How
are the managers of such entities selected?

Managers
of county-level ones are selected from among provincial Party cadres. Municipal
ones are chosen through consultation between the Central and provincial arms of
the Party. The necessary requirements for
the job are, first, a good Party record,
and then a business degree and work experience in the sector. Many are
graduates of Jang Cheol Gu Pyongyang Commercial University and Wonsan
University of Economics.

– What
is the affiliation of the
se
offices, and how are they
organized?

They are
positioned under the commercial department
s of municipal peoples committees. Municipal ones are classified
as
1st class
enterprises,
and deal with various things
like planning, commerce, accounting, labour, logistics, etc. This is what makes
them bigger than county-level ones. Managers of
general stores, which are under the administration offices,
must be ratified by the municipal Party, while those responsible for ordinary
stores are chosen from within the executive branch of the administration
office. Th
e executive branch is composed of a junior Party secretary,
departmental secretary, and a manager, whose daily reports get reported to the
city, provincial, and Central Party by the Party secretary.

– How are they comprised?

They
have a Commercial Administration Section, Food Services Section, Conveniences
Section, and Services Section (this office oversees
things
like
bathhouses,
massage parlors, and hairdressers). The Services Section was once classified
under the Conveniences Section, and the Food Services Section was under the
Commercial Administration Section, but they were both hived off after
jangmadang (markets) cropped up
in the 1990s.

Each
Food Services Section has about 500 restaurants within its remit, of which less
than 100 are state-owned; all the rest are private.
But
t
o run a private
restaurant you need a certificate confirming approval from the Food Services
Section. It used to cost 50,000 won a month in fees, too, which the Food
Services Section must transfer up to the relevant people
s committee. Individual
targets
for the
Food Services and Services sections are set by the planning section of the
relevant people
s committee, while
the overall  Commercial Administration Office plan is set by the State
Planning Commission. Food Services and Services sections often bribe people
s committees to get their
targets reduced so they
have a chance to make a profit.


How many shops are in the average city and what is their function?

Shops
are the places that directly supply and sell
the goods to residents. There are
those that sell foodstuffs and
others that sell light industrial
goods. In a city of seventy thousand households, there would be seventy stores
; one per
every thousand families, and six of the larger general stores.
Store
managers submit a list of their households to the commercial administration
office, and in turn they get goods like doenjang [fermented
soybean paste], soy sauce, salt, shoes, toothbrushes, etc. from the office,
which they
are then meant to supply to residents.

-What
goods do these offices distribute?

Those
manufactured in North Korea, and those supplied by the UN. During the
[presidencies of Kim Dae Jung and Roh Moo Hyun], volumes of UN goods rose
dramatically. When UN goods arrived at the port at Nampo, they were greeted by
the United Front Department of the Party and the Central Wholesale Office. The
former body divided them up by origin (China, US, and South Korea), removed all
South Korean labels and handed them over to
the latter. They took bribes from local
commercial offices seeking to receive a greater share of the UN goods [
] UN goods supplied the seed money for Kim
Jong Il
s gift politics.

-What
are
the
key parts of such an offices plan?

The
agencies must distribute Class 1 consumer goods such as alcohol, doenjang,
shoes, soap, toothbrushes, toothpaste, etc. to individual families on the four
major holidays (Chinese New Year
s Day, February 16th, April 15th, and Chuseok). However, an even more
important thing is keeping the 4th 
Warehouse [for strategic goods]
stocked. If the manager fails to send 5% of production to the 4th 
Warehouse
then he can be held legally responsible.

Also,
military goods in the warehouse must be replaced once every three years with
new ones. These warehouses are often located in remote mountainous spots, and
nobody can go in there except the Party secretary, commercial administration
office manager, and 4th 
Warehouse employees.

-What
is their present condition?

Take the
cosmetics factory in Sinuiju that Rodong Sinmun 
[recently] said
was operating normally. The
Commercial Administration Office should
receive seventy thousand bars of soap monthly from the factory, but if they don
t pay a monetary sum worth roughly thirty
thousand bars of soap at market price to the factory, they won
t get it. The agency will then immediately
sell forty thousand bars of soap on the open market in order to recoup the
purchase price. The same goes for shoes as well. The purchase price of a pair
of running shoes is two pieces of rubber. The agency must pay the market price
of rubber to the factory in order to receive the shoes.

In this
situation, the commercial
side will cooperate with store managers to
engage in trade. The store managers obtain loans from donju [money
men, often Chinese-Koreans], then use the funds to order goods from the administration
office. The office is permitted to buy and sell goods nationally, and has a
license to trade with China, so they use the money to trade in sugar, flour,
oil, refrigerators, etc. from China. These are
then sold at wholesale prices to
stores. The stores will then sell the goods at a price slightly higher than the
market price.
If the scale of the trade gets bigger, the
office can enlarge operations by obtaining bank loan
s on the pretext of bringing
to fruition the Party
s plan of enhancing citizens living standards.

-Do
North Korean banks charge interest on loans?

There is no interest on bank loans in North Korea. A commercial trader
is backed by the name of a state agency, so once his credit has been confirmed
the bank manager sets a lending schedule and
just transfers the cash. However, if the borrower
does not
give 20% to
the bank manager
at the
time of the transfer
then he won’t be able to transact future loans. Just like the saying money
goes to money,
the bank manager profits readily at the expense of the nation.

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