On Money: North Korea Is No Longer the Hermit Kingdom — but How Long Will China Be Its Lifeline?

On Money: North Korea Is No Longer the Hermit Kingdom — but How Long Will China Be Its Lifeline?

- in World Biz

Nor is North Korea as ossified as outsiders might imagine. Kim still wields the instruments of totalitarian power, but he has relaxed the state’s grip on the economy, allowing officials and ordinary citizens greater autonomy to make money and engage in trade, so long as a chunk of the profits flows to Kim’s inner circle. As a result, the North Korean economy grew 3.9 percent last year. Food prices have stabilized. Mobile phones have proliferated. And construction cranes now dot Pyongyang’s rising skyline. “North Korea is no longer a communist country,” says Justin Hastings, the author of the book “A Most Enterprising Country.” “Every state entity has been deputized to make money.”

The nebulous unit that supervises much of North Korea’s hard-currency trade is a Workers’ Party of Korea bureau with the Orwellian name Office 39. As sanctions become more onerous, North Korean companies, whether dealing with licit or illicit goods, have become adept at operating with multiple layers of disguise: false identities, fast-changing front companies, ships sailing under “flags of convenience” from places like Togo or Tuvalu. Office 39 doesn’t coordinate all this activity, recent defectors say; along with other departments, it acts more like a collection agency, setting dollar quotas that enterprises must meet by any means necessary.

Kim Kwang-jin, a defector who worked in Singapore for a bank affiliated with North Korea, says his firm met its quota by running reinsurance scams on factory fires, transportation accidents and other disasters. In 2003, Kim Kwang-jin told me, he arranged to send Kim Jong-un’s father and predecessor, Kim Jong-il, the annual quota as a birthday gift — $20 million in cash, stuffed into two heavy-duty bags. The Dear Leader was so pleased that he sent a thank-you note along with fruit, blankets and a DVD player. “North Korea has gotten more adept at hiding its tracks since then,” says Kim, who now works at a think tank run by South Korea’s intelligence service. “But it is also much more dependent on China.”

The countries have a love-hate relationship. In the Korean War, the two newly formed Communist states forged a bond that Chairman Mao Zedong claimed was “as close as lips and teeth.” But Kim Il-sung, who was nearly killed by Chinese allies in the 1930s, feared that China would take over his country at the end of the war. Decades later, when the Soviet Union, its main benefactor, collapsed North Korea had nowhere to turn but China and felt betrayed when Beijing established ties with South Korea in 1992. China now accounts for more than 80 percent of North Korean trade, yet Kim Jong-un — channeling his grandfather’s resentment — openly defies Beijing, accelerating his nuclear-weapons program and even timing missile tests to embarrass President Xi Jinping.

Until now, the calculus in Beijing has been guided by caution. Push North Korea too hard, the reasoning goes, and the resulting conflict or collapse could lead to millions of refugees pouring into China and a united, America-aligned Korea becoming entrenched on its doorstep. Now the balance may be shifting. Alarmed by Kim’s nuclear provocations — and perhaps pressured by the Trump administration — China is acting tougher on sanctions. In the past month, it has stopped trucks filled with North Korean seafood, ordered Chinese banks to drop North Korean clients and vowed to shut down North Korean companies. Some North Korean workers in northeast China are already heading home. As James Reilly, an associate professor at the University of Sydney, puts it, “China has really crossed the Rubicon.”

Illustration by Andrew Rae

Yet there are serious doubts about how far China is willing to go. And because North Korean enterprises rarely leave their fingerprints on overseas bank accounts or companies, how tough can Beijing’s enforcement be? To skeptics, China’s late conversion signals not a commitment to sanctions but a desire not to be scapegoated by Washington, where the default position has long been that China is responsible for its wayward little brother. “China is not the only country that matters,” says Andrea Berger, a North Korea expert at the Middlebury Institute of International Studies at Monterey. “North Korea has a big footprint overseas, so we have to look at its networks around the world, too.”

North Korean trade outside China is deep and varied, its value often underestimated. Russia employs tens of thousands of North Korean workers in construction sites and Siberian logging camps even as it helps Pyongyang evade sanctions on oil imports. In Africa, where North Korea formed strong bonds during the independence struggles, the most visible signs are the massive statues built for leaders and dictators by North Korea’s state art studio, Mansudae. Behind these monuments is a bustling trade in arms, minerals and manpower, often aided by embassy staff. Only rarely are shipments stopped. Last year, though, Egyptian customs agents found 30,000 North Korean rocket-propelled grenades hidden under a mound of iron ore on a ship bound for their country, a United States ally. Since then, the Trump administration has withheld almost $300 million in aid and military funding from Egypt.

United Nations’ sanctions are now targeting one of the most lucrative enterprises: the export of quasi slave labor. An estimated 100,000 North Koreans are toiling around the world in abysmal conditions: 12-to-16-hour days under constant surveillance, their wages and freedom confiscated by the state. “North Korea is exporting crimes against humanity,” says Remco Breuker, a Dutch historian who led an investigation of companies using North Korean workers in Europe. These laborers can be found in roughly 40 countries, from shipyards in Poland to building sites in Qatar — to the little restaurant in my neighborhood.

When the disco lights at Pyongyang Okryu flashed on, our waitress appeared onstage in a lime green dress, crooning a North Korean melody. Two others danced beside her with little sense of rhythm or joy. Last year, 12 waitresses and a manager working in a restaurant in Ningbo, China, defected en masse, so the control over workers’ lives is reportedly even tighter now. Unlike my last visit to a North Korean restaurant, there were no homages to the leader, no conga lines to “Country Roads.” But near the end of the show, our waitress donned a traditional gown and played the 21-string gayageum, a kind of zither dating back to medieval times, when her Korean ancestors reigned over part of what is now China. After paying the bill — a hefty sum for Bangkok — I carried my sleeping son out and the waitress patted his head. I may be wrong, but I think I even detected a genuine smile.

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