Pedal Primacy: On the Bicycle in Kaesong

By | August 28, 2012 | 7 Comments

Bicycle in Sino-Korean Border Region | photo by Adam Cathcart, Dandong, August 2012

Pedal Primacy: On the Bicycle in Kaesong

by Christopher Green

They Want to Ride Their Bicycles | It rapidly becomes clear to anyone paying a visit to non-Pyongyang urban North Korea that bicycles play an important role in daily life. In percentage terms, anecdotal evidence has it that 70-75% of families have one. Thus, it is not excessive to say that the country has become a nation of cyclists, at least in the cities.

This is as true down in Kaesong as it is anywhere else. Indeed, in a recent piece released by Chosun Exchange, this very city was cited as one place that has enjoyed a particularly impressive increase in bicycle ownership over the last decade, to the extent that streets “that were a few years ago dominated by pedestrians are now clogged with bicycles.”

It is the piece’s sensible presumption that this growth in bicycle ownership must be due to the positive influence of the 50,000+ North Korean workers employed by (at last count) 123 South Korean enterprises in the Kaesong Industrial Complex (KIC). It could scarcely be otherwise, given that roughly 15% of the city’s residents are employed in this way.

This analysis of causation in Kaesong is obvious, and reasonable. After all, Kaesong is reliant on the KIC, so it is to be assumed that most of the bicycles on the streets are being bought with money earned from it.

Indeed, the city has little else going for it. For one thing, it lies at the center of North Korea’s farming heartland; for another, it has limited alternate industrial infrastructure; third, it is in a militarily controlled zone, meaning that the documentation needed to visit it is more difficult to obtain than for any other destination bar the capital and Sino-North Korean border cities; while fourth, but by no means least, the city has been without revenue generated from tourism for some years, since a short-lived boom turned to spectacular bust upon the shooting of a South Korean visitor to Mt. Keumgang by a North Korean guard in the summer of 2008.

However, Kaesong does not enjoy purchasing power primacy, in bicycles or anything else. To put it another way, there are visibly expanding cycling communities in other cities, too. For example in Nampo, a city I saw earlier this year with my own eyes.

Expropriation: the Great Equalizer | But why, one would be right to ask, is Kaesong not streets ahead of all other North Korean cities, including Nampo, if the KIC pays each worker more than $67 per month plus bonuses while North Korean companies, well, don’t? Perhaps inevitably, it is because the KIC doesn’t either. In truth, the state expropriates somewhere between 80% and 90% of all the wages paid to workers in the KIC. These wages are paid in hard currency to the authorities, and they then redistribute a portion of that money to the workers themselves, along with a curious array of foodstuffs in lieu of a certain amount of the remainder.

Therefore, if workers are indeed fortunate enough to receive 20% of the money that is sent north in exchange for their labor rather than the more pessimistic 10%, then they are on average paid a basic wage of $13.40 per month. If they luck out and only get 10%, then that means $6.70.

Yet in spite of the wages and the outright theft by those above, people still want to work in the KIC. Part of the appeal is that it provides additional products to workers that can be sold in the market to add income. This includes the snacks that are given out by the companies, the foodstuffs that are given to the workers by the state in lieu of public distribution, and, to a modest extent, the products that are liberated from the KIC and then sold on. In total, this is all worth having, and renders low headline wages somewhat meaningless.

But some or all of the above is true in any joint venture company operating in North Korea to a greater or lesser extent, and that’s the point. There is a growing number of such companies in almost every region of the country (350 according to some counts). No exact information on the take-home pay in many of these enterprises is available (and, given that there is no collective bargaining going on, there may well be substantive differences anyway), but this dispatch from the Joint Ventures and Investment Committee itself provides the basics of the official line at the time of writing. As below:

The minimum monthly wage for workers in North Korea was set at €30 or about 42,000 KRW. In addition, foreign companies must pay €7 to each employee separately as social insurance. Overtime pay also needs to be paid and at the event of work related injuries or illness, the company is responsible for handling the situation with its board of directors.

Thus, thanks to the fact that the state expropriates most of the wages of KIC labor, workers in the two sorts of company end up in a roughly comparable position in purely wage terms. It is not altogether clear whether other conditions are comparable, though in conversations with various defectors with experience of both the KIC and joint venture companies, I have heard repeatedly that it is not possible to live on joint venture company wages alone, so in most cases some degree of alternative distribution is presumably going on as well.

Then, what does Nampo, our earlier example, have to offer in this area that might match the effect of the KIC and make bicycle ownership there equally common? Well, the South Korean-funded Pyeonghwa Motors Corp. and the nearby Daean North Korea-China Friendship Glass Factory, to name but two.

Provincial Strategies of Survival | Thus, while it is the case that the KIC is the biggest single foreign-invested entity in North Korea, the wages paid by all joint venture companies in the country are of a roughly similar standard and, contrary to popular misconception, there are actually quite a lot of those joint venture companies around. The KIC has 123 companies paying 50,000 people, which is, in toto, larger than any other single joint venture. But that is the only difference, a difference of degree.

Neither Kaesong nor Nampo are particularly exceptional, then. At the end of the day, each urban area in North Korea has its own ways of surviving. Kaesong has the KIC, yes, but Nampo has cars and glass (and port services), while Wonsan used to have the Moranbong ferry to and from Niigata, but is now linked to the somewhat revived Mt. Keumgang tourist zone and has its own somewhat more modest joint venture companies (and port services), while North Hamkyung Province has the highest concentration of joint ventures overall, and only 2 million residents in total. No wonder Prof. Stephan Haggard expects that particular region to be so dynamic in the future.

Obviously this doesn’t mean that any urban center in North Korea is rich, but it does mean that every urban area is surviving and, for a significant number of people, $13 per month is not an astonishing amount of money. We should not forget that joint venture company wages are not even radically higher than those of the modest number of persons lucky enough to enjoy success in the market, or supply the market, or sit in Party, military and administrative chairs that allow for rent-seeking.

Thus, while a job in the KIC might be something to envy, and Kaesong might be a relatively good place to live, it is not the only place that is seeing inexorably rising levels of bicycle ownership. There is more than one way to buy a bicycle, it would seem, even in North Korea.

Screenshot from KCNA video from Rason, where, as the reader can see, bikes are a plenty | Click image to watch video via YouTube

7 Comments

  1. “I have heard repeatedly that it is not possible to live on joint venture company wages alone, so in most cases some degree of alternative distribution is presumably going on as well.”

    Untrue! The workers of the JV companies where I’m a shareholder have 1 job only as they get enough foodstuff (often used for bartering) and incentives. In my book “A Capitalist in North Korea: My Seven Years in the Hermit Kingdom” I have clearly mentioned the case of a manufacturing and distribution JV I was running where we have been paying bonuses in hard currency which the workers could keep. It was more than enough to ensure a decent livelihood.

  2. Thanks for commenting Felix! That was partly my point: the money alone is not enough, there is the need for, as you say, “foodstuffs to use for bartering.” Do you have the option of paying workers in cash only should you choose, or does the government ask you to pay in alternate products such as foodstuffs? As we know, in the case of Kaesong it is a requirement that all hard currency payments go through the state, while alternative products go to the workers.

  3. As I mentioned in my book, joint venture companies pay (minimum) salaries fixed by the government which differ according to qualification and hierarchical level. Although they are fixed in hard currency, payment is made in Won at the official exchange rate. With the widening of the gap between the official exchange rate and the actual (black market) exchange rate, purchasing power diminishes correspondingly. When I asked the authorities to pay incentives (in addition to the salaries) in hard currency which the staff could change at the actual exchange rate on the market, they agreed. And it made our staff happy…

  4. Great solution, Felix. So do you think other JVCs also pay hard currency bonuses to compensate for diminishing purchasing power in local currency wages?

  5. I’ve shared and discussed my experience with other business people, in particular with Chinese. It seems to me that the majority have recognized the necessity to do something about it like giving foodstuffs and incentives to make sure workers would not leave the enterprises or that their morale and performance would not drop.

  6. I should add that we did not call the extra-contractual payments “incentives” (a capitalist concept) but a “gift” by the foreign investors to the hard working Korean employees which was considered “politically correct”. As you can imagine the label is not so important for business people, but the bottom line is…

  7. Ha ha! Yes indeed. It brings new meaning to the concept of ‘gift politics’ [선물정치]!

    On that note, thanks very much for your input, Felix. You’ve helped to partially confirm one original hypothesis; that JVCs dotted around major North Korean cities are helping to keep the cities’ economic heads above water. I’d heard this from North Koreans about Wonsan, Nampo, and Hamheung, among others, not just Kaesong and Pyongyang.

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