The earliest news to emerge from North Korea in 2020 covered two issues key to the Pyongyang regime as it advances into a new decade: loyalty and the economy.

On January 5, North Korean state media showed what looked like hundreds of thousands of citizens rallying in central Pyongyang to voice support for the tasks set forth by the Plenum of the Central Committee of the Workers Party, held at year’s end. And on January 7, footage showed Kim Jong Un’s first public appearance of 2020, offering “guidance” at a fertilizer factory.

At a time when denuclearization negotiations with Washington are deadlocked – a situation that also obviates North Korean economic engagement with US ally South Korea – and the country girds for renewed confrontation with the US, Kim may take comfort in two factors.

Firstly, his economy continues to defy sanctions – to the point where the quality of life for both the elite and the average North Korean appears to be stable, if not rising. Secondly, public loyalty, and overall stability, look assured.

This all suggests that, for the foreseeable future, Kim will continue his rule and his nuclear programs.

A new economy

A widespread perception exists globally that North Korea is an economic basket case, and it does, indeed, lag far, far behind China, Japan and South Korea. As North Korea disseminates no economic data, it is difficult to analyze – but even so, according to experts, that perception is outdated.

The transformation of a formerly heavy industrial economy was ignited in the 1990s. Following the collapse of European communism, years of agricultural mismanagement and unusual weather conditions, North Korea was racked by catastrophic famines that likely killed hundreds of thousands.

In response, organic black markets selling food and medicines, obtained via illegal cross-border trade with China, sprang up as a survival mechanism. Post-famine, the markets defied official crackdowns and morphed into consumer emporia, selling everything from fashion goods to electronic products.

According to South Korea’s Sejong Institute, some 500 of these jangmadang markets exist nationwide. They are no longer black, they operate in plain sight, under official fiat, and have replaced the state distribution system as the source of daily goods for the majority of the populace.

Critically, the markets have introduced key disciplines – such as supply and demand, market pricing, marketing – to a formerly mismanaged, state-run economy. They have also sparked e-commerce, with – according to Sejong Institute data – some 5.8 million North Koreans (among a population of 25.4 million) surfing the national intranet on their smartphones in 2019.

An app store in Pyongyang. Customers pay at the kiosk, download the app via cable, then authenticate it on their smartphones, which are synched with the local Intranet, but not the worldwide web. Photo: NK News

Over the last five years, experts note, the economy has undergone another shift. The donju (“money masters”) – the class of shrewd investors who may or may not be members of the political elite – have been refocusing. Instead of markets and trade, they have been investing in local manufacturing, largely of consumer products, for local consumption – shoes, clothes, foodstuffs, cosmetics, electronic gadgets. Regulatory reforms have enabled this transformation toward what state media calls “a self-reliant economy.”

This has contributed to import substitution. That trend has, in turn, reinforced the use of the local currency, the won, rather than the foreign currencies which were formerly favored.

Although there is no official tax system in North Korea, this activity grants Pyongyang a wider economic base to extract from. Above all, these trends have stabilized the economic lives of the citizenry, to the point where the average North Korean now probably enjoys a better quality of life than at any time since the 1980s.

Growth or contraction?

Absent official North Korean data, experts look at various signs.  The monitoring of official export data from countries that trade with North Korea paint a grim outlook for the country’s core export sectors – coal, iron, seafood, textiles and labor.  Seoul’s Bank of Korea estimates, on the basis of related data, that North Korea’s economy shrank a whopping 4.1% in 2019.

Data suggests North Korean exports are shrinking dramatically, but on-ground observation and monitoring of daily indicators suggest the economy is doing fine. Source: The Sejong Institute.

Yet those who visit the country report  little change, and many local indicators suggest growth, or at least, stability.

“We have contradictory signals,” Peter Ward, who monitors the North Korean economy for Seoul-based specialist media NK Pro, told Asia Times. “On the one hand, we see exchange rate and price stability, and on the other, we see trade figures looking increasingly bad for the regime and an export sector which is trading at much less than peak capacity.”

Ward noted that prices of oil and the value of the won are stable, while prices for rice and corn are, in fact, trading in lower bands than over the last four years. It’s a puzzle. “They may be seeing lower growth or contractions, but no major problems yet,” he said. “Maybe the economy has contracted, and as a result, there is less demand so prices have fallen – but this would not explain why the won is so stable.”

Ward sees two bright spots for the economy and the citizenry. “Light industry has been relatively positive for five or six years; production has taken off after reform measures between 2013-2015,” he said. “And I think the solar uptake has been very positive: The more North Koreans get it, the better, as they will be less dependent on spotty government supply, and will have more access to electricity.”

Travelers to North Korea in recent years have noticed the large number of private solar panels adorning homes,  and also the rising number of electric bikes and scooters entering use.

For Kim, the growth of a “self-reliant” economy is good news. He has repeatedly and publicly stated his intention of raising the quality of life of his people and vowed not to “tighten his belt.”

According to an analysis released to foreign reporters by Seoul think tank the Asan Institute, mixed economic messages came out of December’s Plenum, which Kim presided over for an unprecedented four days.

There was emphasis on restoring socialist commerce and on a socialist responsible management system – which would appear to be backward steps. However, other priorities are more forward-looking: reorganizing unnecessary procedures and systems; correcting factors that reduce business efficiency; strengthening construction capabilities; modernizing construction equipment, and protecting the environment.

What about sanctions?

Since 2016, North Korea has been the most heavily sanctioned nation on earth. This makes doing business tremendously difficult for its overseas partners, given their risks of incurring secondary sanctions from Washington. Proof that sanctions are impactful is evident in repeated North Korean demands for sanctions relief in return for denuclearization steps.

In mid-December, China and Russia proposed an easing of sanctions at the UN Security Council. However, in the face of British, French and US resistance, it is unclear if or when those parties will put it to a UNSC vote. The draft mentions labor, seafood and textiles – core North Korean exports.

North Korean leader Kim Jong Un greets Chinese President XI Jinping during his state visit to North Korea in June. China supports North Korea, but economic relations are not entirely amicable. Photo: AFP / KCNA VIA KNS

Meanwhile, North Korea has become highly practiced at sanctions evasion and can count on Chinese and Russian sympathy. Indeed, China supplies oil and food to North Korea under a sanctions waiver for “humanitarian goods” – a broad, vague category, and also supplies an increasing number of tourists to the country. Reports and anecdotal evidence suggest Chinese and Russian companies and individuals – it is unclear whether or not they enjoy state support – are violating sanctions.

Still, Pyongyang is dissatisfied with Beijing, which has not made the kind of value-added, technology- and skills-transferring investments North Korean seeks. Pyongyang’s establishment of (mostly empty) foreign investment zones nationwide suggest a hunger for more diverse investors, and the country is wary of over-dependence upon China.

“Their trade deficit is always increasing with China: The Chinese may overlook some debt, but North Korea is spending its own money,” Go Myong-hyun of the Asan Institute told Asia Times. “China only gives North Korea enough to survive, and that is why North Korea complains about Chinese lack of generosity.”

Given this, Go believes, Pyongyang cannot rely exclusively on its “self-reliant economy,” and so seeks ex-Chinese foreign capital and investment.

Leif-Eric Easley, associate professor of international studies at Ewha Womans University in Seoul, sums up Kim’s economic assets and liabilities.

“The North Korean economy is experiencing structural change, new consumer options and greater competition, and with the help of certain entities in other countries, the North Koreans are getting better at sanctions evasion,” he told Asia Times. “But sanctions are impeding growth and skewing the economy. The regime appears concerned about the consequences and – judging from renewed rhetoric about belt-tightening and self-reliance – may be struggling with how to manage public expectations.”

Stability and loyalty

Yet it is difficult to see how disappointed public expectations could actually impact Kim who – at worst – might lose face due to his failure to deliver promises.

There are no known opposition figures or groups inside the country. Only one is known to exist outside the country – the shadowy “Free Joseon,” which raided the North Korean embassy in Madrid last year. However, that group’s activities appear trammeled and ineffectual, and it appears to lack powerful backing.

Recent events suggest the regime is shoring up public loyalty as North Korea gears up for worsened relations with the United States as hopes for a breakthrough after two years of unprecedented leader-level negotiations recede.

The mass rally in Pyongyang was one; the use of a consensual party Plenum, rather than a leader’s New Year speech, to deliver public messages was another; Kim’s filmed horse rides around the iconic Mount Paekdu with family and close aides are yet more.

Moreover, Kim has been visiting a range of shiny new projects – notably a coastal resort in Wonsan, the Masikryong Ski Resort and the new town of Samjiyon – that are playgrounds for his elite support base, and which are believed to be public-private partnerships between the state and well-heeled donju. Meanwhile, state media shows cadres taking invigorating group tours to wintry Mount Paekdu.

A hotel under-construction in Samjiyon in September 2019. The monumental construction project in the country’s north, ordered by Kim, involves the total rebuilding of the entire town. Photo: AFP / Ed Jones

“Even if you are a very powerful person, things only happen because you get people to do things for you: Materially you can reward them or you can punish them, and there is the cognitive, ideological side,” said Daniel Pinkston, an international relations expert at Troy University. “The ideology is pervasive, with all of the propaganda surrounding the lead up to the Plenum, and they have built these hotels and monuments and historical revolutionary sites surrounding the Kims and their revolutionary exploits and all these mass organizations have been going as a kind of reward.”

It is not just carrots; sticks also entrench Kim’s rule. North Korea’s state repressive mechanisms – including multiple levels of internal surveillance, a gulag network, torture and executions – are fearsome. Even the most powerful and most connected are not immune: Kim’s powerful uncle Jang Song-taek was executed in 2013, and his half-brother Kim Jong-nam assassinated in Kuala Lumpur in 2017.

Elites and nukes

Kim has made multiple personnel changes since assuming power in 2012, seeding key organizations with figures loyal to himself. With those in power complicit, there is little chance of a palace coup: If the regime imploded, elites could find themselves facing judges in Seoul or The Hague for abuses of power.

“If not Kim – who else?” asked Ward. “There are no ready-made alternatives to the Kims in North Korea: [The elite] can hang together – or hang separately.”

Given these realities, even if sanctions slash supplies of the elite’s luxury goods, antagonism will not necessarily be generated toward Kim, whose policies fortify North Korea against external threats.

“Just because people cannot buy nice cognac does not mean they are going to rebel,” Ward said. “I think the nuclear program enjoys a good deal of popular support and probably more elite-level support.”

Part 1 of Asia Times’ North Korean Outlook 2020 report, which covers relations with the United States, can be read here.

Kim Il Sung Square in central Pyongyang. In prosperous parts of North Korea, such as the border town of Sinuiju and the capital, electric bikes from China – with about eight hours of battery life – are replacing the bicycles of yore. Photo: NK News