NORTH KOREA: PRICE WOES, SQUEEZED AID GROUPS, PRC

C O N F I D E N T I A L SECTION 01 OF 03 SHENYANG 000067

SIPDIS

DEPARTMENT FOR EAP/K, EAP/CM, INR, PRM

E.O. 12958: DECL: TEN YEARS AFTER KOREAN UNIFICATION
TAGS: PREL PINR PGOV PREF EAGR KN KS CH
SUBJECT: NORTH KOREA: PRICE WOES, SQUEEZED AID GROUPS, PRC
GRAIN-EXPORT ENFORCEMENT

REF: A. (A) SHENYANG 37

B. (B) SHENYANG 30

C. (C) SHENYANG 14

Classified By: ACTING CONSUL GENERAL ROBERT DEWITT.
REASONS: 1.4(b)/(d).


1. (C) SUMMARY: Recent returnees from Pyongyang, Sinuiju
and Rason point to sharply surging food prices in the DPRK.
North Korean laborers employed by one aid group in Rason
have complained that food-inflation has eviscerated their
purchasing power. Customs officials in Yanbian are
strictly enforcing grain-export restrictions, and anecdotal
reports suggest possible tightening in recent weeks. PRC
officials and scholars assert PRC grain-export restrictions
have had only a minimal impact on PRC-DPRK trade and on
North Korea's internal food situation. NGO personnel
operating in the Rason area and near the PRC-DPRK border,
by contrast, claim PRC export restrictions have severely
debilitated some food-related aid projects, though
experiences vary. END SUMMARY.


2. (C) Poloff traveled May 12-16 to Jilin Province and the
northern end of the PRC-DPRK borderlands. Sites visited
included Changchun, capital of Jilin Province; Yanji, seat
of the Yanbian Korean Autonomous Prefecture; Tumen,
opposite the DPRK's Namyang; and Hunchun, near China's land
gateway to Rajin-Sonbong (Rason). This is the first in a
multi-part snapshot of the PRC-DPRK border in April/May

2008. Subsequent parts examine North Korean food
difficulties, official/unofficial PRC food assistance, the
tightening border and North Korean border-crossers, inter
alia.

SURGING FOOD PRICES IN NORTH KOREA
--------------

3. (C) Recent returnees from Pyongyang, Sinuiju and Rason
all pointed to surging food prices in North Korea. A
Yanji-based Korean-American recently returned from a two-
week stay in Pyongyang noted May 14 that fruit prices in
the city's markets had at least doubled compared to the
same period last May. The price of grains there has risen
similarly, observed the Amcit, a monthly traveler to
Pyongyang over the past several years. LIU Chensheng
(STRICTLY PROTECT),a facilitator of PRC investment in
North Korea via the Liaoning Civilian Entrepreneur
Association's Korean Liaison Office, told Poloff April 29
in Shenyang that he observed rapidly increasing North
Korean food prices during his recent business trips to
Pyongyang and Sinuiju (opposite Dandong, in the DPRK's far
northwest),which he makes on at least a monthly basis. A
Yanbian-based Western aid worker recently returned from an
ongoing aid project in Rason reported May 16 that the price
of certain food products--many imported from the PRC--in
the northeastern port-city's markets had doubled, and in
some cases tripled.


4. (C) North Korean laborers employed in Rason by the
Yanbian-based aid worker's NGO recently complained to their
employers that their salaries had become effectively
"worthless" because of sharply rising food prices. The
NGO's attempt earlier this month to ship rice from China to
the project-site in Rason as a salary supplement for
workers (and to guarantee supply for its Western staff
there) was scuttled by PRC grain-export restrictions,
according to the aid worker.

TIGHTENING ENFORCEMENT OF PRC EXPORT RESTRICTIONS...
-------------- --------------

5. (C) Anecdotal reports suggest an additional tightening
of the PRC's recent export regulations on grains and other
commodities (see refs A-C),at least in Yanbian. Despite
the new regulations, the Yanbian-based aid worker noted
that in recent months she had been able to successfully
ship grains into Rason via Quanhe Land Port (near Hunchun),
albeit at considerable cost because of the elevated export
taxes. But starting "two or three weeks ago," officials at

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Hunchun Customs suddenly informed her that no grain exports
to the DPRK would be permitted, regardless of whether
shippers had remaining space in their export quotas.
Enforcement at Quanhe Land Port is strict, she reported.
Chinese customs authorities there, for instance, recently
confiscated a 25-kilogram bag of rice from her friend,
another Western aid worker who had sought to bring the rice
to Rason for personal use, though customs returned it when
he re-entered China. Quanhe customs officials also
confiscated a far smaller amount from our contact without
explanation; upon protest, they permitted her to bring in a
token fistful, she related.

...BUT PRC CONTACTS ASSERT IMPACT IS MINIMAL
--------------

6. (C) PRC officials and scholars generally assert that PRC
grain-export restrictions have had a minimal impact on PRC-
DPRK trade, as well as on North Korea's internal food
situation. Two respected North Korea experts at the Jilin
Academy of Social Sciences (JASS),CHEN Longshan (STRICTLY
PROTECT) and ZHANG Yushan (STRICTLY PROTECT),acknowledged
May 12 in Changchun that China's grain-export policy has
had "some impact," but asserted any effect was mitigated by
the PRC's continued offer to supply the DPRK with
sufficient humanitarian aid. A frank senior official
overseeing all Yanbian's land ports told Poloff May 15 in
Yanji that he was unaware of any dramatic impact on PRC-
DPRK trade, a point echoed May 16 by officials in Tumen,
who spoke of strict enforcement of grain-export
restrictions at Tumen Land Port. Farther south in Dandong,
through which the majority of PRC-DPRK trade passes, YONG
Renzhong (STRICTLY PROTECT),Director of Dandong's Port of
Entry Administration, told Poloff during a visit to
Shenyang May 20 that the restrictions have had little
"visible" impact on PRC-DPRK trade there. Two North Korea
experts at the Liaoning Academy of Social Science, LU Chao
(STRICTLY PROTECT) and WU Jianhua (STRICTLY PROTECT)
suggested that the DPRK has been suffering "a certain
impact," but ultimately proffered conclusions similar to
Yong Renzhong's during discussions with Poloff on April 28.



7. (C) (NOTE: Some Chinese government scholars are advising
Beijing to limit the "temporary" grain-export controls to
no more than one year, lest they cause major distortions in
the agricultural sector, and in incentives to producers in
particular, according to JASS' Zhang Yushan, a specialist
on DPRK economic issues. END NOTE.)

SOME NORTH KOREAN AID PROJECTS FEELING THE SQUEEZE
-------------- --------------

8. (C) In contrast with most PRC officials and government
scholars, NGO personnel involved with humanitarian projects
in the DPRK told Poloff that PRC grain-export restrictions
have had an impact on certain projects. Experiences,
however, vary. The Yanbian-based, Western aid worker, for
instance, claimed several humanitarian bread and/or noodle
factories run by NGO groups in the Rason area have been
forced to cease operations because they have been unable to
import Chinese grain (e.g., flour) into the DPRK as before.
(The aid worker knows of at least "seven or eight" such
operations in Rason, though it remains unclear exactly how
many suspended operations. Some of the larger ones employ
up to 40 or 50 North Koreans, she said.) A number of NGOs,
unclear on how to proceed, are exploring ways to procure
grain from Russia or South Korea, ultimately shipping the
inputs to the DPRK by sea, according to the aid worker.


9. (C) Closer to the PRC-DPRK border, other humanitarian
food-factories have managed to muddle through, according to
a Western administrator at Yanji's Yanbian University of
Science and Technology involved with the school's quiet aid
projects in North Korea. The administrator suggested that
pre-existing ventures with which she is familiar have
seemed to suffer less of an impact, though she declined to
offer specifics. In certain cases, she said, some
humanitarian groups have shifted aid strategies and

SHENYANG 00000067 003 OF 003


procedures in order to comply with the new export
regulations. One shift involves processing all their
inputs (e.g., soy) in China--instead of the DPRK--and
exporting only finished products (e.g., high-protein soy
products) to the DPRK.

DEWITT