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North Korea braces for economic winter as omicron cuts off trade

YOSUKE ONCHI, Nikkei staff writer

 

SEOUL — The signs were there in mid-November. North Korea and China appeared ready to restart overland trade as the train made its way across the Yalu River, entering China from the North Korean side.

 

Workers could be seen performing repairs on the Sino-Korean Friendship Bridge, which connects Dandong, China, with Sinuiju, North Korea and is a one of the few ways to enter or leave the North.

 

These signs of activity led South Korean intelligence to expect a a resumption of trade between the communist neighbors — a crucial development for North Korea’s economy. But that prediction proved wrong as the emergence of the omicron coronavirus variant caused Pyongyang to once again seal the country’s borders.

 

North Korean authorities are “putting all efforts to thoroughly ensuring the perfect state emergency epidemic prevention system,” state media declared at the end of November. Bilateral trade with China is now apparently limited to ship-to-ship transfers of cargo on international waters.

 

Serious shortages of food and other supplies inside North Korea. Leader Kim Jong Un reportedly ordered deputies to secure food “to the last grain of rice,” according to a South Korean intelligence assessment, with the leader likening the situation to “walking on thin ice.”

 

North Korea’s gross domestic product shrank 4.5% in 2020, according to an estimate by the Bank of Korea, South Korea’s central bank. It is the steepest decline since a 6.5% contraction in 1997, during the height of a multiyear famine, known as the Arduous March, that is believed to have killed millions of people.

 

Despite this precarious state, North Korea’s leadership believes the country still has room to withstand the pressure as prices of grains and other staples remain stable. Kim does not accept international humanitarian aid, sticking to slogans of “self-reliance” and “frontal breakthrough.”

 

“North Korea has promoted domestic production of supplies since the Arduous March,” said Kim Byung-wook, director-general of the North Korea Development Institute in Seoul. Kim himself defected from North Korea in 2003.

“As the result of decreased consumption of electricity and other reductions of economic scale, the turmoil has been limited,” Kim added.

 

Another factor is a public awareness of how to get by without relying on the state, according to Kim. Because of the failures of the planned economy and the rations scheme, the North Korean leadership has limited rations to senior Workers’ Part officials living in the capital.

 

Kim Jong Un supported a shift to a market economy by legalizing the black market and allowing capable people to head up businesses. There are over 400 “consolidated markets” in the North where ordinary citizens can make their living.

 

This opening up has even given rise to a class of nouveau riche called tonju — the “money masters.”

 

Economic indicators had been improving until 2016, before the country suffered a series of setbacks. The first occurred in 2017, when the U.N. Security Council imposed sanctions on North Korea following its sixth nuclear weapon test. The sanctions placed a cap on petroleum imports.

 

The amount of foreign currency coming in has plunged. North Korea’s foreign currency holdings had expanded by $300 million to $400 million a year between 1997 and 2003, according to Bank of Korea documents. Those holdings shrank by more than $1 billion in both 2017 and 2018 due to the sanctions.

 

Around the time he opened dialogue with former U.S. President Donald Trump in 2018, Kim considered emulating China and Vietnam as models for growth since they both achieved economic development under socialist governments. North Korea embarked on a slew of projects, including tourism infrastructure to draw inbound travelers, in hopes of drawing foreign investment.

 

The breakdown of talks between Washington and Pyongyang dashed those hopes. The North Korean government feared that opening up the economy would risk the inflow of liberal ideology and other ideas that may discredit the dictatorship.

 

Authorities stepped up their control of information. Since last year, the government enacted new laws that make disseminating South Korean dramas punishable by death and strengthen youth indoctrination.

After nearly 10 years at the top, Kim has yet to navigate a path to economic prosperity.

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