Sino-DPRK relations on the rocks? And other troubles on the Jangmadang

News is ablaze with speculation on the possible deterioration of relations between China and the DPRK after Pyongyang conducted its long-prophesized third nuclear weapons test on February 12, 2013. It is no secret that Beijing disproves of its ally’s pursuit of nuclear weapons capabilities, but this time, on top of coming on board with stricter sanctions put forth by the UN Security Council Resolution 2094, China appears to be taking steps of its own to discipline North Korea.

Meanwhile, as noted earlier, the price of rice in North Korea rose between February and March of this year. We assessed that this increase was possibly due to corresponding increases in rice prices abroad, in particular from Vietnamese supply; however, we also left open the possibility that this could also be fallout from the nuclear weapons test.

Indeed, many observers believe that the price fluctuations are largely due to Beijing taking steps to control the flow of cross-border smuggling that have gone on for years and is now sustaining the fragile North Korean consumer market. Wall Street Journal supported the view that Beijing’s crackdown on smuggling was behind the increase in rice prices and an anonymous diplomatic source familiar with Sino-DPRK relations corroborated that the Chinese government is showing unprecedented resolve to control North Korea’s behavior.

Consistent with this analysis, Beijing appears to have also taken steps against North Korean banks operating within China and cut its delivery of crude oil to the fuel-starved country.

Nonetheless, other experts have argued that inherent problems existing within North Korea are more to blame. Chris Green sees North Korea’s heavy urban bias and military exercises as the core reason behind the general increase of prices. He rightly points out that the price of rice has been unnaturally high for a long time, steadily increasing months before the nuclear test.

Backing up Mr. Green’s key observations, despite stories of China cracking down on smuggling, commercial activities appear to be continuing as before. At best, China seems to have curbed some activities, but still turning a blind eye to other flows or possibly recognizing that the task of completely controlling the cross-border exchange is impossible.

Adding weight to the suggestion that recent price fluctuations were caused by domestic factors, DailyNK reported in January that state authorities were exerting greater control over the people’s economic activities; noticeable increases in the number of checkpoints were reported and the state was clearly stepping up its efforts to limit the size of privately-held farming plots. These actions could have led to a reduction in the volume of domestically traded rice in the country’s already-troubled food market.

The price hike in February-March may have also reflected a rational response from domestic entrepreneurs who sought to cover expected losses during the forced closure of the jangmadang during nation-wide military exercises in mid to late March.

Until domestic rice prices for April 2013 are reported, it may be premature to pinpoint which event or factor had caused falling prices to rebound in March. In addition, working with limited data, it would be wrong to assume that any single variable determines prices in a distorted market like North Korea’s – something DPRK Food Policy blog will keep in mind as we continue to keep a close eye on market trends and economic conditions in North Korea.


About Yong Kwon

I develop trade advocacy strategies for a DC-based consulting firm. Studied economic history at the London School of Economics, and can be found on twitter at @ykwon88
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One Response to Sino-DPRK relations on the rocks? And other troubles on the Jangmadang

  1. Pingback: A looming food crisis? or an end to Inflation? A roundup | DPRK Food Policy Blog

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