North Korea's 'Money Masters' Hold Keys to Kim's Economic Revival

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Signs of marketization are spreading in North Korea, much of it, including some state-run shops, driven by private capital. Here, a food kiosk in Pyongyang in April.

Signs of marketization are spreading in North Korea, much of it, including some state-run shops, driven by private capital. Here, a food kiosk in Pyongyang in April.


Photo:

Ivarsson Jerker/Aftonbladet/IBL/ZUMA Press

SEOUL—An expanding network of markets in North Korea is emerging as a vital cog in leader Kim Jong Un’s mission to revive the economy, while forging a class of moneyed elite whose interests the regime can’t overlook.

New studies show an increasing number of official and unofficial marketplaces selling goods, food and medicine, helping to mint a mercantilist group of middle- and upper-class North Koreans known there as donju, or “money masters.”

The rise of these enterprises in a country whose people once relied on a state distribution system, and the comparative wealth they bring to a business-minded elite, make them increasingly important to Mr. Kim, who has signaled an emphasis on the economy this year after declaring his nuclear force complete.

A new report counts 436 officially sanctioned markets, up from zero during a famine in the 1990s and double the number a decade ago, in an estimate by the Center for Strategic and International Studies in Washington and the defector-run North Korea Development Institute think tank in Seoul.

Women sell fruit beside a road on the outskirts of Sinchon, North Korea, south of Pyongyang, as markets sprout in the nominally socialist country.

Women sell fruit beside a road on the outskirts of Sinchon, North Korea, south of Pyongyang, as markets sprout in the nominally socialist country.


Photo:

Ed Jones/AFP/Getty Images

Separate tallies in recent months by

Curtis Melvin,

then a researcher at the U.S.-Korea Institute at Johns Hopkins University, and Daily NK, a Seoul-based news outlet, found 480 and 387 officially sanctioned markets, respectively, employing at least 600,000 citizens.

Since the spring, Mr. Kim has visited factories, farms and other economic facilities, many in remote corners of North Korea, a tour Pyongyang’s state media this month heralded as a “long journey of patriotic devotion.”

But the attention Mr. Kim has lavished on state projects belies the central role that markets play in North Korea, said

Victor Cha

and

Lisa Collins,

authors of the CSIS report. Many North Koreans now rely on markets more than the state for their livelihoods, the researchers said, basing their assessment on conversations with North Koreans inside and outside the country.

Official centers exist alongside black markets known as jangmadang that sprang up beyond state control during the 1990s famine, as North Korea’s socialist distribution system began to break down after the end of Soviet support.

North Korean leader Kim Jong Un has shifted attention to his country’s economy, and state media have made much of his tour of factories, farms and other economic facilities. Here he visits a fish pickling factory with his wife, Ri Sol Ju (right), in an undated photo released by the official Korean Central News Agency this month.

North Korean leader Kim Jong Un has shifted attention to his country’s economy, and state media have made much of his tour of factories, farms and other economic facilities. Here he visits a fish pickling factory with his wife, Ri Sol Ju (right), in an undated photo released by the official Korean Central News Agency this month.


Photo:

kcna via kns/Agence France-Presse/Getty Images

As these markets have become woven into the fabric of the North’s urban and rural areas, Pyongyang has imposed a form of taxation on trade that nets some $56.8 million a year, according to the researchers’ calculations.

That makes the enterprises a relatively steady source of income for a government squeezed by international sanctions. They also represent a potential avenue for growth if fitful nuclear talks with the U.S. result in the easing of sanctions—another key to Mr. Kim’s economic mission.

Though some North Korean markets are as small as 2,800 square feet, the largest, in the northeastern city of Chongjin, covers more than 250,000 square feet and has thousands of stalls that bring in $850,000 a year in government revenue, CSIS estimates.

The inner workings of the North Korean market economy and how it sources goods aren’t fully understood. The trading centers appear to be plugged into an increasingly sophisticated supply chain connected to an export industry of coal, seafood and other commodities—though U.S.-led sanctions have pinched exports generally in recent months.

“If you’re looped into lucrative supply chains, you can make a lot of money,” said

Peter Ward,

a scholar at Seoul National University who is researching North Korea’s economic reforms.

While private enterprise is illegal under North Korean law, businesses with links to state-owned enterprises have allowed the donju to prosper. Some provide financing for starting and expanding market businesses, for building houses, or buying raw materials for factory production, said Ms. Collins.

Vendors prepare flowers at a shop in Pyongyang in November.

Vendors prepare flowers at a shop in Pyongyang in November.


Photo:

ED Jones/AFP/Getty Images

In general, the donju are aligned with the state’s interests. “The more they’re able to make money, the more conservative they become,” Mr. Ward said. “They don’t want a revolution, or to see all their wages and savings eviscerated by inflation or financial collapse.”

The danger for Mr. Kim, the third-generation leader of a regime that has survived on near-total control of North Korea’s political and economic systems, is that this influential demographic’s private interests eventually clash with those of a government that isn’t prepared to loosen political authority.

Experts point to a disastrous, state-orchestrated currency revaluation in 2009 that sparked widespread dissatisfaction. A senior official was later publicly blamed for the revaluation, and executed.

Nearly a decade on, the ranks of the donju have swelled, revealing a taste for conspicuous consumption that has fueled the growth of coffee shops, sushi restaurants and spas in the North Korean capital.

That makes any attempt by Mr. Kim to reverse liberalizing reforms potentially perilous, after he staked his legitimacy in part on improving living standards, said Ms. Collins.

Kim Jong Un

will have to walk a fine tightrope between giving them limited freedom to earn money and provide financing for market activity and development projects, and trying to control and co-opt them into his own economic development agenda,” she said.

Researchers suggest the markets’ spread is creating the beginnings of what Mr. Cha described as a “latent civil society,” whose members could resist policy changes that might damage their livelihoods.

Many have made small fortunes conducting trade with foreign partners, making them less reliant on the state. In recent months, North Korea has stepped up its criticisms of Western-style business in state media, publishing near-daily screeds extolling socialism and deriding capitalism as a morally corrupt system “in which money is everything.”

These kiosks in Pyongyang, when photographed last year, were selling flowers, snacks and drinks.

These kiosks in Pyongyang, when photographed last year, were selling flowers, snacks and drinks.


Photo:

Wong Maye-E/Associated Press

Outside North Korea, some advocates argue that the U.S. needs to lift sanctions and encourage the North’s new class of traders to nudge the country toward a China- or Vietnam-style economic opening.

Others see encouraging private enterprise within the country as a means of undermining the regime’s authority in a way that might eventually lead to its destabilization.

As the markets gain in importance, the question is how much laborers in North Korea’s “formal economy”—steel factories, coal mines and the like—flock to trade in hopes of improving their standard of living, said

Andrew Yeo,

a specialist in North Korean studies at Catholic University of America in Washington.

“If the formal economy begins to hollow out, if they learn to survive based on markets, you wonder if they begin to question the legitimacy of the regime,” Mr. Yeo said.

Write to Jonathan Cheng at jonathan.cheng@wsj.com

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