Privatization and Legal Changes in North Korea: Focusing on Loan, Asset Lease and Trade

This study focuses on transactions characterized by de facto privatization, specifically the process where North Korean citizens exercise de facto ownership over means of production or accumulate private capital through transactions involving institutions, enterprises or organizations (hereinafter collectively referred to as ‘corporate entities’). As representative cases, it selects three types of transactions for analysis : (1) loan, (2) asset lease and (3) trade. This study examines how North Korean laws are actually applied in these cases. Citizens were not allowed to directly make loan investments in corporate entities. However, in 2014, the Enterprise Act was amended to include provisions allowing the mobilization and utilization of idle cash funds from citizens. Additionally, in 2024, the Civil Act introduced new provisions enabling corporate entities to accept idle funds from citizens, deposit them in banks and issue ‘corporate bonds’ as a form of direct loan investment. The leasing of means of production between corporate entities and citizens is not permitted. However, in practice, seemingly legal methods, such as hiring citizens or organizing separate enterprises, can be used to facilitate the leasing of means of production. Meanwhile, the Civil Act amended in 2024 includes provisions that could be interpreted as allowing the leasing of means of production between corporate entities and citizens. However, this is likely to be a simple legislative error that fails to clearly reflect the intent of the North Korean authorities. In principle, citizens are not allowed to engage directly in trade activities. According to the 2022 Trade Act, only corporate entities with granted ‘trade rights’ (business licenses) can participate in trade transactions. However, citizens can engage in trade in a seemingly legal form by utilizing the name of such entities through employment and entities without trade rights can borrow such rights to engage in trade. It is not appropriate to simply dismiss de facto privatization as merely illegal or non-institutional. Transactions involving corporate entities are largely based on legal grounds. They are generally carried out in legal or institutionalized forms, utilizing the market while maintaining socialist principles.