The Peninsula

How Marketization Changed Ground Transportation in North Korea

By Yonho Kim

North Korea’s transportation system traditionally centered around the railway, as Kim Il-sung, the founder of the communist state, stated: “Railways are the arteries of the country.” However, with the economic crisis in the 1990s, the railway system was no longer able to properly function due to a lack of energy and deterioration of locomotives and railway tracks, most of which were inherited from the Japanese colonial era. It became common for trains to run as slow as around 20 km per hour and stop frequently, extending a theoretically less than one-day trip to a several-day adventure. Little change seems to have been made so far according to the South Korean inspection team that recently examined North Korea’s railway line along its east and west coasts. With only international passenger trains being on time, domestic merchants no longer depend on railways as a reliable transport service.

As the backbone of the state-run transportation system dwindled, North Koreans who were struggling to overcome the economic crisis began marketization as a survival tactic, which in turn increased the demand of people and product movement. As a result, private road transportation service began to develop and business vehicles called ‘servi-cha’ (The word comes from “service” and car in Korean “cha.”) were introduced. At first, state-run enterprises, military, and state institutions went on to do business with state owned vehicles and imported used vehicles from China or Japan. With the expansion of North Korea-China smuggling market, and the resulting increase in transportation demand, merchants began to pay bribes to state institutions in order to participate in servi-cha business. Since principally the ownership of a private vehicle is banned in North Korea, people must register their cars with state institutions in order to operate their servi-cha.

By the 2000s, the importance of vehicle transport became fundamental especially in the North Korea-China smuggling areas to the extent where sayings such as “the wheels make money” and “the drivers are making a fortune” appeared. The robust vitalization of servi-cha expanded the variety of transportation method from freights, military trucks, to buses, vans, motorcycles, and taxis, satisfying the various demands of the market of operating both short and long distances. With the increase in number of buses, beginning in the 2010s, a nationwide bus network has been created, connecting major cities.

Such changes also gained momentum under Kim Jong-un’s regime with the leniency on market policies. Under Kim Jong-il, Kim’s father, the regime went back and forth between tolerance and regulation over market policies. However, when Kim Jong-un ascended to power, more than just a tacit approval, he switched policy to actively utilize markets. As such, at least since 2014, there is almost no broad scale crackdowns on vehicles for profit. There was even a concern for ‘oversupply’ among the vehicle owners with the revitalized private transport services. On this account, despite the rising gas prices from late 2017 to early 2018, servi-cha owners had difficulty in raising freight rates.

Consumers are also benefiting from the innovation in logistics that resulted from the combination of servi-cha and cell phones whose subscribers are estimated at around 4 million, close to 20% of its entire population. As the merchants are responding quickly to changes in market conditions, product supply to jangmadang has been smooth, and regional price differences and sharp increase in prices have been greatly reduced. In particular, the prices of Chinese industrial products have been significantly reduced to the extent that their Pyongyang general market prices are almost the same as their actual prices in China. As a result, sales strategy aimed at regional price differences no longer lead to a big profit, and this has led to a ‘small profits and quick returns’ policy emerging as the new sales strategy. In this new competitive environment, merchants with the capacity to trade in bulk are more likely to survive.

Proliferation of bulk sales require an enlargement of cargo transfers. The distribution of large cargo trucks in North Korea with the development of the servi-cha market made this possible.

While Chinese Dongfeng trucks with a load limit of 5~10 metric tons were heavily smuggled in the 2010s, trucks with a load limit of 20 metric tons have been preferred in recent years. (According to a defector who frequently communicates with North Korean sources, Chinese trucks with a load limit of 20 metric tons are traded at $45,000 for a new model and $35,000 for a used model that had run about 100,000 miles.) Indeed, the operation cost of a truck of 20 metric tons is cheaper than that of two 10 metric ton trucks. Therefore, some owners of servi-cha responded to rising gas prices by enlarging the load limits.

However, trucks over 20 metric tons are difficult to operate in the poor road conditions of North Korea. For example, although coal delivery from Sunchon, South Pyongan Province, one of North Korea’s coal-mining centers, to Nampo port in the same province is a very profitable business, the load limit cannot exceed 20 metric tons. In some cases, donju, the new class of rich entrepreneurs, invest in renovating bridges and roads if the projects are related to businesses as profitable as the Sunchon-Nampo coal delivery. (It is well known that many of the regime’s flashiest construction projects, including ski resorts and luxury apartments, were conducted under partnerships with donju.) However, it was reported in 2006 that less than 3% of North Korea’s roads were paved and the situation has not improved dramatically.

Marketization and proliferation of servi-cha will inevitably necessitate large scale investments in the maintenance and development of road infrastructure in North Korea. Although the railways have become less popular thanks to servi-cha, a majority of North Koreans still rely on railways for their long-distance travels. The partnership between donju and the state institutions is also seen in the rail passenger and freight transport, although not as active as in the servi-cha business. Revitalizing the railway system in North Korea has a potential to lead the traditional system of economic regional ‘self-sufficiency’ to a more open and inter-regional/nationwide system that would expand regionally segmented and localized marketization. It is time to start reviewing North Korea’s railways and roads in terms of marketization.

 

This article is based on an excerpt from “North Korea’s Mobile Telecommunications and Private Transport Services in Kim Jong-un Era” by Yonho Kim (US-Korea Institute, Johns Hopkins SAIS, May 2018).

Yonho Kim is a Non-Resident Fellow at the Korea Economic Institute of America. The views expressed here are the author’s alone. 

Photo from NVictor’s photostream on flickr Creative Commons.