August 22, 2017: The Chinese government is hearing from Chinese individuals and firms doing business in North Korea that the North Koreans have become even more unreliable when it comes to handling foreign investments from China. In the past China could impose some degree of discipline on North Korean abuse of Chinese investors and investments. The North Koreans are increasingly ignoring this sort of pressure and as a result Chinese investors are backing away from current and planned investments. North Korea used to be a dependable place, at least for Chinese with the right connections in the Chinese government. While corruption in China has declined in the past few years it appears to have gotten worse in North Korea, to the point where long-term deals are avoided and transactions are made carefully, usually with payment before delivery. The smugglers and various other criminal gangs in China that do business with their North Korean counterparts have been forced to operate this way as well and for the same reasons. South Korea and Japan have already learned how unreliable North Korea can be when it comes to business deals and Russia has already adopted the wary approach to economic deals with North Korea.

Sanctions Gone Wild

China has visibly increased enforcement of economic sanctions on North Korea but this has not made North Korea any more willing to negotiate. The growing number of police and secret police night patrols in areas where North Korean smugglers long operated is hard to miss, as is the fact that when North Korean smugglers are encountered they get arrested and taken away. Even higher bribes (over $3,000 to make an arrest not happen) no longer work because the Chinese cops will still demand that amount of cash before they will turn the smugglers over to North Korean officials. China never came down so hard on North Korean smuggling before.

China is also cracking down on North Korean drug production and smuggling. This is a matter of self-defense for China and is effective because North Korea make the highest profits from methamphetamine (“meth”). But this drug requires a key ingredient (phenylacetic acid, in the form of white crystals) to be smuggled in from China. Now the Chinese are cracking down on that as well as the meth coming into China.

China, and Russia, are also cracking down on North Korean workers they long employed legally but are outlawed by the latest round of sanctions. North Korea has responded by ordering overseas workers to stay where they are and work illegally (in deals arranged by their government minders). Yet in many instances the export ban on slave labor is being enforced. A growing number of Chinese factories that depend on North Korean labor have notified North Korea that they can accept no more of these workers. Since North Korean workers are employed on three year contracts and usually go home at the end of that contract and are replaced by another North Korean. The new sanctions allow North Korean workers to complete their contracts but no new contracts or workers are allowed. Most of what North Korean workers overseas are paid is taken by an unofficial agent of the North Korean government and then the cash is transported back to North Korea. These legal North Korean migrant workers are part of what amounts to a slave labor program that has become a major (up to $2 billion a year) source of foreign exchange for North Korea. The North Korean workers work harder for less and are popular in areas (mainly China, Russia and the Persian Gulf) that allow them. The export of North Korean workers has gone from 60,000 men and women in 2014 to over 100,000 in 2017. The number of workers outside the country is nearly triple what it was before Kim Jong Un took over in 2011. The government holds the workers’ families hostage in case the worker does not return home when ordered. If someone does not come back, their families are sent to prison camps.

The new sanctions are apparently working because the North Korean workers are disappearing from many places where they were long legally employed. Moreover smuggled North Korean seafood delicacies are disappearing from Chinese markets as well. Chinese gangsters that specialize in smuggling good to North Korea complain that Chinese police are making it more difficult (but not impossible) for them to do business. This is disappointing for the gangsters because there is much more demand from North Korea for common items, like petroleum products and consumer goods.

North Korean and Chinese police still work together, especially when it comes to the lucrative (for the Chinese involved) business of finding, arresting and returning to North Korea what North Korea calls “defectors” (illegal migrants from North Korea to China.)

Sanctions Gone Mild

Recent North Korean refugees reaching South Korea report that China has indeed been cutting off fuel supplies and in 2017 China began reducing shipments more than ever. But the fuel cuts are mainly about visible shipments for the civilian economy. This was confirmed by what happened during April when the market price (in North Korea) of oil (paid in Chinese currency) tripled. That rapid price increase has since halted, but the market price of petroleum products in North Korea is still very high. Since March anyone who is able to has been hoarding oil and other petroleum products in the expectation that because North Korea is extremely vulnerable to China halting all oil exports, China will take measures to reduce the supply still further. China is the only reliable source of petroleum for North Korea and China is reluctant to halt all shipments.

UN sanctions investigators report that so far this year two illegal North Korean shipments to a Syrian (Assad) government agency involved with chemical weapons research. Details of the shipments, including exactly what it was , how it was being moved and which UN member country did the interception, were not made public. Both the North Korean shipper and the Syrian recipient are banned by current sanctions on North Korea and Syria. These smuggling efforts are more frequently detected and intercepted and the nations involved (usually North Korea, Syria and, even with many sanctions lifted, Iran) simply deny involvement and accuse someone else (America, Israel, the UN in general) of faking the incident. The UN is already investigating North Korean efforts to continue supplying Syria with SCUD missile components and technology.

China has cracked down in some obvious ways that will be noted by foreign media. For example China has restricted the amount of fuel trucks and other vehicles headed for North Korea can carry. North Korean truck drivers can no longer fill nearly empty fuel tanks before crossing back into North Korea. Chinese border guards have been particularly attentive to attempts to smuggle fuel into North Korea. While on the North Korean side of the border the inspectors are demanding larger bribes from people caught smuggling petroleum products in. With the huge disparity between what oil products sell for in China and North Korea there is money to be made for those willing and able to smuggle the stuff into North Korea. These days the North Korean government quietly encourages this sort of smuggling. Meanwhile more discreet smuggling of refined petroleum products from Russia is largely out of sight.

Senior North Korean officials who got to South Korea recently confirmed that there is a secret supply of Chinese oil for the North Korean military. This comes in via a pipeline and some of it is stored in above-ground storage tanks. This continued and secretive Chinese oil deliveries may have something to do with the mutual defense treaty China and North Korea have long maintained, but never disclosed all the details. The current treaty was agreed to in 1961 and lasts for 20 years, at which point both parties may review, or cancel, their participation. The treaty comes up for renewal in 2021.

This “treaty oil” explains the continued (if often minimal) of activity by North Korean military aircraft, ships and vehicles. This also explains the continued prolific use of petroleum products in all those ballistic missile and nuclear weapons facilities.

North Korea has found ways to cope with loss of oil for many civilian needs. For example, North Korea has, for over a decade, been converting thousands of trucks to run on coal gas. This sort of thing was popular in Japan and Germany during World War II because of oil shortages but largely disappeared after 1945. In North Korea these coal powered trucks are an increasingly common sight. But coal gas is half as efficient as petroleum fuels, and vehicles using it are slower, have less range and require more maintenance. Thus coal gas is not suitable for most police and military vehicles or combat operations.

Something North And South Have in Common

For over a decade now both Koreas have been confronted with a lower birthrate and the inability to reverse the problem. While South Korea can allow immigration to help with labor shortages North Korea is a place people flee from not flock to in search of work. Part of the reason is because there is growing unemployment in North Korea caused by the decades of socialist economic policies. While the legal market economy in North Korea is growing it is creating more jobs but not enough to reduce the popular attitude that North Korea is a place the young and ambitious need to leave, any way they can. That means plunging birthrate that matches (for different reasons) what is going on throughout East Asia.

This has been building for a while. By 2010 South Korea had the lowest birth rate (1.15 children per woman, on average) in the world and held that dubious achievement for two years in a row. This is because of growing affluence over the last half century. South Korea is now one of the wealthiest nations on the planet. At the current birth rate, the South Korean population is expected to stop growing in the next decade, after reaching about 52 million (about twice the population of the north). If the birth rate stays under 2.1, the population will then begin to shrink. In North Korea, the birth rate is 1.9, and is also declining, because of increasing poverty and famine. For example, life expectancy in the north has declined from 72.7 years in the early 1990s, to 69.3 now. That's ten years less than in South Korea. Northerners are not only living shorter lives, they are also shorter. A study of teenagers in the north and south revealed that the northerners are 8 percent shorter, and weigh nearly 20 percent less. It's not as bad with adults, because they were not born during the famine (which began after Cold War subsidies ended in the early 1990s).

By 2012 there was a very visible shortage of recruits for the North Korean armed forces. A lower birth rate in the 1990s, because of the famine (that killed five percent of the population back then) has reduced the number of 18 year old recruits for the army and security forces. So fewer exemptions are being allowed, and more 17 years olds are being taken. North Korean men serve at least six years (and up to ten) in the military, keeping them out of trouble for that time in their lives (18-24), when they are most likely to act out revolutionary fantasies. The military is really a large prison system. While the troops are trained to use weapons, they get little ammunition for training, and the weapons are locked up most of the time. Young North Koreans increasingly know how poor they are, and in greater and greater detail. The soldiers born during the great famine of the 1990s are well-aware that they are physically much smaller than their South Korean counterparts. They also know that the average South Korean lives ten years longer and lives a much more pleasant life. All the more reason to limit the time North Korean troops can handle their weapons, especially when they have ammunition (which is actually very infrequently.)

Another problem both Koreas share is willingness of conscript troops to risk punishment in order to use cell phones on duty. This has been a more visible problem in South Korea but in the north military personnel are not allowed to use (in nearly all cases) or even own (for most troops) cell phones. But in the north the more enterprising troops go into business (also forbidden) and this usually requires a cell phone. Bribes all around make this work, at least in the north. In the south popular pressure from voters got the rules changed.

Illegal Migration

In North Korea the government has regularly increased its efforts to block people from illegally leaving the country. But at the same time there is little effort to curb the illegal movement of farmers to the urban areas. Communist states, including North Korea, deal with this by imposing a form of feudalism. This usually takes the form of requiring everyone to carry an internal passport at all times. For most North Korean you need that passport and a permit to travel outside your home town. Since 2012 those travelling to areas near the Chinese border required additional permissions and documentation. Passport checks have become less stringent away from the Chinese border, especially as the government realized it was best to look the other way as more desperate rural folk (especially employees of the state run farms) paid small bribes (or none at all) to get past passport checks and move into the urban areas where the growing market economy was largely legal and willing to hire anyone without checking documents. Like most matters involving the market economy the government ignores illegal but necessary side effects until such time as it appears safe to make it legal. Since most North Koreans are technically farmers (occupation is also mandated by the state) and the growing demand for workers in the market economy enterprises is getting worse, the government is allowing the problem to solve itself. Meanwhile on the Chinese border document checks remain rigorous and more frequent. The bribes to get past them grow ever more expensive.

Great News Goes Sour In The North

In the wake of the two successful “ICBM tests” in July the North Korean government boasted to its own people about this great and glorious achievement. By August the secret police reported that most North Koreans privately criticized these two tests and the missile and nuclear weapons programs in general. North Koreans can do the math and realize that all the money spent on missiles and nukes is the main reason for all the shortages (of electricity, roads, food, medical care) that they encounter daily. No one can mention this openly but the nationwide informant network reports on what people really think and this news is not good for the North Korean leadership.

Cell Phones Want to be Free

The government finds that designing new cell phones, banning certain SIM cards and installing more jammers along the Chinese border are no match for young North Koreans who want unrestricted access to the Internet. If the security forces catch someone near the border using a Chinese phone (to call to a Chinese cell tower across the border) the size of the bribe depends on where the call is to. If it is to China you pay about $300 to walk away. But if the call is to South Korea or elsewhere in the West the price more than doubles. There is the risk that North Korea has regular access to data about who is calling from cell towers within range of North Korean border areas and that a specific phone and call (to the West) was made. That could get the attention of the few bribe-proof secret police still around. Or at least that’s how secret policemen doing cell phone patrol along the border tell their “customers.” Sometimes the reason is “I have to make my (arrest) quota” and there are not enough poor people (who cannot afford the bribe) to haul in. Whatever the case older secret police commanders note the morale of subordinates assigned to cell phone patrol has improved and that the reason probably has to do with money, not effective pro-government propaganda. North Koreans note the growing timidity of the secret police and security services in general. There less enthusiasm among those who are supposed to keep the population in line and the people notice it. What is most worrying is that the one thing most bribe takers are saving money for is enough cash to get themselves and their families out of the country. That takes a lot of money to do right (relatively safely and to reach South Korea).

August 21, 2017: South Korea and the United States began ten days of joint training exercises despite North Korean threats of violence if the exercises went forward. North Korea has long been protesting these joint training programs. These large and expensive exercises are held regularly by professional and well-funded military organizations. But the U.S. and South Korea have long done this sort of thing. That bothers North Korea a lot because since the 1990s North Korea has been too poor to keep up in the training department. These days most of the nearly one million North Korean troops spend most of their time growing food and working for civilian enterprises to earn money to pay for fuel and other supplies the government can no longer afford to provide.

These protests have been a favorite North Korean diplomatic ploy for over half a century. It goes like this, North Korea concentrates on building up their military forces, but keep details secret and insists they are all for peace. But at the same time, democracies, which have a free media, are criticized for the size and disposition of their armed forces, and for holding training exercises. If the U.S. or South Korea point this out to the north then North Korea denies everything and insists what goes on in North Korea is none of your business. As absurd as this sounds, it's what's been going on for decades. This drill has become part of the media landscape and isn't really noticed by the locals any more. But occasionally it gets violent. In the 1950s and 60s, North Korea would attack American intelligence ships and aircraft outside their air space or coastal waters (as recognized by international law) for "spying." It's the old "what's mine is mine and what's yours is negotiable" ploy taken to a deadly extreme.

August 19, 2017: Even before North Korea backed down on its IRBM (Intermediate Range Ballistic Missile) threat to Guam Internet security firms agreed that North Korean hacker groups that normally specialize in making money for the North Korean government were now spending more time trying to penetrate American defense system networks using relatively expensive (and very effective) spear fishing tactics. North Korea cannot afford to divert their Cyber War forces to projects that don’t bring in cash (or bitcoin) because major legal sources of foreign currency (slave labor and mineral exports) have been sharply reduced by new sanctions. Then again North Korea may have offered a bounty (along with useful data and malware to assist) to freelance hacking groups to get this less lucrative campaign going.

August 18, 2017: American and Japanese military leaders met in Japan and the U.S. agreed to provide whatever Japan wanted to improve its missile defenses. This would include the land-based (Aegis Ashore) version of the Aegis anti-missile system already installed on some Japanese warships. The U.S. pledged to work closely with Japan as it develops new anti-missile technologies.

August 17, 2017: Ukraine denied that it had ever provided North Korea ICBM rocket engines or the plans to build them. This comes after technical experts noted that the new North Korean ICBM was using engines very similar to those built at the Ukrainian Yuzhmash factory. During the Cold War Yuzhmash produced RD-250 engines for the Soviet 1970s era R-36M (SS-18 or "Satan" in the West) ICBM. The RS-18 was developed as a "light" ICBM, in effect, a competitor for the U.S. Minuteman series. The R-36M was designed in 1969, first tested in 1972 and entered service in 1975. It's the largest ICBM the Russians ever built, with a liftoff weight of 210 tons and a warhead weighing eight tons. While it's a liquid fuel rocket, storable liquid fuel is used. This avoids lengthily fueling procedures common with earlier Russian ICBMs. Modifications and upgrades for the missile produced six separate models, the last one entering service in 1990. After 2000 Russia wanted to refurbish a hundred of the most recently built (in the 1980s, for the most part) R-36Ms. Shortages of cash and resources reduced the number refurbished and as of 2016 only about fifty were operational. By 2018 only about 30 will be working and by 2020 none will. Work on SS-18 components in the Yuzhmash plant ceased after Ukraine split from the Soviet Union in 1991 and Yuzhmash converted to building satellite launchers, which it still does. Russia was a customer but since 2014 Yuzhmash has put more emphasis on non-Russian customers. Russia claims that Yuzhmash technical personnel went to North Korea several times, the most recent visit being three months in 2016. Ukraine and Yuzhmash deny this.

Yuzhmash executives point out that the RD-250 engines showed up in North Korea quite recently and Yuzhmash has had nothing to do with the RD-250 for over two decades while Russia still had RD-250s and maintains some ICBMs that use them. That means Russia has the people still familiar with the RD-250 and up-to-date plans on how the RD-250 is built. If anyone has spare RD-250s (to keep existing SS-18s operational) it is Russia. Ukrainians point out that Russia has more often been a source of illegally obtained military tech than Ukraine. Both Russia and Ukraine were sources of stolen military technology after the Soviet Union collapsed in 1991 and it was easier to get Russian stuff to North Korea because the two share a common border. Meanwhile Ukraine sold a lot of Soviet era military tech to China, often legally (although the Russians didn’t always agree with the legal angle). Ukraine blames these RD-250 accusations on Russian “Information War” efforts against Ukraine to try and distract media attention from the continued Russian determination to seize and hold Ukrainian territory.

Speaking of corruption (which Ukraine suffers from a bit more than Russia) there has been more publicity about prosecutions of Russian managers in space program related industries. These investigations were known long before North Korea made its “sudden advances” in ICBM tech over the last year. The corruption in the Russian space program has been widespread and became a public matter (the government prefers to deal with corruption problems quietly) when it became obvious more than a decade ago that Russia was having problems building new ICBMs or satellite launchers. Recently the state controlled Russian media has had several stories of prosecutions for embezzlement and other misbehavior explain a lot of the financial and quality control issues in firms that design and build ICBMs and satellite launchers.

August 16, 2017: China has halted the legal export of North Korea seafood to China. Dozens of North Korean trucks were stopped at the border and some of the drivers got out and loudly protested the fact that their refrigerated cargoes were going to be lost either from spoilage or because the seafood would have to sold for much less in North Korea.

August 15, 2017: North Korea backed down on its threat to fire four ballistic missiles at Guam. The threat was described as a demonstration as four IRBMs would be fired at Guam but aimed to fall at least 30 kilometers from the island. This would be a demonstration of North Korean capabilities and the threat was supposed to persuade the U.S. to back off on planned joint military exercises with South Korea. In addition North Korea wants the U.S. to take action to lift sanctions on North Korea. In the past, as least since the 1990s, such threats have persuaded the U.S. to provide enormous amounts of economic aid in return for disarmament pledges the North Korea did not make good on. The U.S. would not withdraw its remaining forces from South Korea nor cancel the treaties it has with South Korea to defend it against North Korean attack. North Korea has always insisted that it is the victim and that the U.S. is out to destroy North Korea. Since the 1960s that was never the case but China and Russia always supported the North Korean propaganda until, after the Cold War ended in 1991, such support weakened. China in particular was tired of North Korean behavior and in 2017 told the North Koreans that Chinese support would not be provided if North Korea attacked the U.S. or South Korea. Meanwhile the U.S. refused to back down to the North Korea threat and made it clear there would be a violent and immediate response if North Korea even appeared ready to fire missiles towards Guam. This put North Korea in a bad position because the IRBMs aimed at Guam require a day or more of preparations that can be seen by satellite surveillance. So North Korea announced today it would pause its preparations to see what the United States would do.

The most likely missile North Korea would use against Guam would be the Musudan IRBM, which first appeared in 2011 and is believed to have a range of up to 4,000 kilometers. That would put American bases in Guam (3,200 kilometers from North Korea) within range. There is a more recent missile that could eventually be used. On May 14th the Hwasong-12 (KN-17) IRBM had its first successful test. This missile apparently used a rocket engine similar to the RD-250-like one used in Hwasong-14 ICBM. The previous Hwasong-12 test, at the end of April, failed. Hwasong-12 is a single stage SCUD type (liquid fuel) ballistic missile that has long been in development. It is used on a tracked mobile launcher and is rumored to have a warhead with a guidance system capable of hitting a large, moving ship (like an aircraft carrier) at sea. There is no proof of that at all, but makes for great headlines. In theory the Hwasong-12 could have a max range of over 4,000 kilometers but this test only took the missile out to about 780 kilometers. If another test takes a missile out to 900 kilometers it’s worth another lucrative headline. Guam is American territory and site of the largest concentration of U.S. bases in the West Pacific.

August 7, 2017: In response to yet another embarrassing incident the South Korean defense minister pledged to improve the living conditions of conscript soldiers and prevent a repeat of a recent incident in which it was revealed that Park Chan Ju (an army general and his family) used soldiers as household servants for years and often mistreated the troops.

August 3, 2017: In North Korea Kim Kwang Won, the head of the fisheries department was released from custody after being arrested in China sometime in mid-June and charged with smuggling antiques. The Chinese were surprised to find a senior North Korea official personally engaged in smuggling but it turned out that Kim Kwang Won was no ordinary government official or smuggler. His real occupation was leader of a large smuggling operation which had bribed so many North Korea officials that it had gained control of a small port town near the coast on the Yalu River. From here he ran a smuggling operation that survived by making sure that the North Korean government was paid well. Given the growing demand for foreign currency by the government Kim Kwang Won was tolerated. But the master smuggler got caught up in the growing Chinese anti-corruption drive as well as stricter Chinese enforcement of sanctions on North Korea. Kim Kwang Won misjudged the danger and while in a Chinese port to help organize a new smuggling operation (dealing in North Korean antiques) he was arrested along with two associates. Undaunted Kim Kwang Won pulled strings and paid whatever it took (in bribes and “gifts”) to get quietly expelled back North Korea and then, after explaining himself and paying more “fines” was quietly released to go back to his lucrative (for the government) work. At the same time Kim Kwang Won has to discreetly discover if he has enemies among his “friends” in the secret police. The number of secret police operatives getting rich from bribes has created tensions within the Secret Police. Disagreements over who gets what often escalate to one of the dissatisfied Secret Police agents quietly reporting some major source of bribes (like Kim Kwang Won) to senior officials who can be relied on to arrest someone. Kim Kwang Won knows of this because such bad behavior is increasingly common. But he had bribed his way into a senior government position and was supplying the government with lots of foreign currency. Nevertheless in his line of work you can’t be too careful. One mistake can cost you your life.

August 1, 2017: South Korea received the second of four LST II class amphibious assault ships from a local ship builder. The new LST will require 3-4 months of crew training and sea trials before it is ready for service. The LST IIs are 7,100 ton vessels that can carry 300 hundred troops as well as 10-20 vehicles. There is a landing pad that can hold two helicopters. Two smaller landing craft that can run up on a beach are also carried. The first ship entered service in 2015 and are part of an expansion of South Korea amphibious forces. The South Korean Marine Corps is being expanded from 25,000 men to 32,000 by the end of the decade. Meanwhile South Korea is becoming a major builder of modern warships. Not just in the region but worldwide.

July 30, 2017: The U.S. Army carried out another interception test of its THAAD (Terminal High Altitude Area Defense) anti-missile system. This is the second such test this month (the other was on the 11^th) and both were successful as were the other six such tests since 2010. There have been 28 test firings of THAAD since 1995 and 22 were successful. Many of the tests before 2005 did not involve attempting to actually intercept an incoming missile warhead. Many of the tests since 2008 were to verify that new features (like the ability to hit targets closer to the surface, and to share data with Patriot anti-missile systems) as well as verifying that the overall system worked. THAAD entered service in 2008 when the first THAAD anti-ballistic missile (ABM) battery was deployed. This followed a 2006 firing test that used regular army personnel and not developer technicians. In 2009 the second battery was formed. By 2012 there were five batteries with more on order by a growing list of export customers.

The most prominent foreign user of THAAD is South Korea, which recently received a THAAD battery. While THAAD cannot intercept an ICBM warhead near its target, THAAD can intercept the ballistic missiles North Korea had been testing recently that could, in theory, be used as ICBMs. The two most recent North Korean tests of their Hwasong 14 missile landed less than a thousand kilometers distant and that flight profile is one THAAD could handle.

July 28, 2017: Russia is trying to improve its relationship with North Korea but most of what the Russians do is more publicity stunt than economic boost. The latest example is the failed ferry. In June 2017 Russia and North Korea opened a new weekly ferry service between North Korea and Vladivostok, the major Russian port on the Pacific coast. A 1,500 ton North Korean ship was used, a vessel that carries 193 passengers plus cargo. Because Russia is checking cargo (for sanctioned items) and IDs the ferry is not getting much business. Russia continues to observe European rules on who and what can legally go to North Korea. This is done so as not to threaten trade Russia still has with European nations. Russia has also increased its exports to North Korea in 2017 but that does not amount to much as Russian trade always accounted for only a few percent of North Korean foreign trade.