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How North Korea makes money? Are Russia and China the main benefactors of Kim Jong Un?

How North Korea makes money? Are Russia and China the main benefactors of Kim Jong Un?

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  • GS 2 || International Relations || India & Rest of the World || South East Asia

Introduction

  • The country of North Korea, officially known as the Democratic People’s Republic of Korea (DPRK), has an isolated and tightly controlled command economy. A command economy is a standard component of any communist country. In a command economy, the economy is centrally planned and coordinated by the government.
  • Largely cut off from the rest of the world, North Korea’s trade with foreign territories has officially been severed as a result of global sanctions against the nation. Despite this, the reclusive country’s leader Kim Jong-un and its elite still manage to enjoy lives full of luxuries, many of them originating from abroad.
  • So where is all the money coming from? And how is the country coping during the coronavirus pandemic.

A Brief History of Korea

  • Korea was historically an independent kingdom. However, following the Russo-Japanese War, the Korean peninsula was formally annexed by the Japanese. Korea remained a Japanese colony from 1905 to 1945.
  • After World War II, the Japanese forces in the northern region of Korea surrendered to the Soviet Union, and Soviet troops took control of the northern region of the country. At the same time, American troops took charge of the southern region.
  • The newly separated regions appointed their respective leaders, and in 1950, North Korean leader Kim II-Sung (backed by the leadership of the Soviet Union), attempted to capture the U.S.-backed southern region of Korea (the Republic of Korea, or ROK), sparking the Korean War, which lasted from 1950 to 1953.
  • Kim Il-sung’s attempt to capture the southern region of Korea and bring the entire peninsula under his communist rule was ultimately unsuccessful. The resulting stalemate split the Korean peninsula roughly in half. North Korea (DPRK) established its national economy through heavy industry-first development and military-economy parallel development. South Korea (ROK) established one of the world’s most advanced modern-day economies.

Growth in GDP despite sanctions

  • The best way to measure a country’s economic success is via its gross domestic product (GDP), and while North Korea doesn’t make its economic information public, data released by Trading Economics and the World Bank puts its GDP at $18 billion for 2019 and shows that it has been growing year on year.
  • This is only a fraction of neighbouring South Korea’s GDP, which the World Bank reported as $1.6 trillion in 2018, but the fact that North Korea has seen growth suggests that the international sanctions imposed to try and damage its ballistic missile and nuclear weapons programme have had minimal impact.
  • According to South Korea’s central bank, North Korea’s exports rose in 2016, the last year for which it has data, by 4.6% to $2.82 billion. This figure does not include trade with South Korea and is largely a result of foreign sales of a variety of goods.

Exports

  • Exporting coal- Coal is North Korea’s main export, bringing more than $370 million (£305m) a year in illegal shipments. In February 2017 China announced that it would be ending all coal imports from North Korea for the year in a bid to comply with UN sanctions.
  • Exporting textiles- Clothing made up a total of $584 million (£481m) of North Korea’s exports in 2017, according to the OEC, including non-knit coats, suits and activewear. In recent years there has been a lot of controversies when it comes to clothing made in the socialist state because a lot of it is said to have been labelled with ‘Made in China’ tags before being exported.
  • Seafood export is also huge.

Trading with China

  • By far, China is North Korea’s largest trade partner and the only close thing the country has to a ‘friend.’
  • The Chinese influence in North Korea is seen from Xi Jinping’s visit to Pyongyang in 2018, where the supreme leader of North Korea was seen quietly and timidly sitting back as Xi gave his speech. If North Korea loses China, its growing economic concerns might collapse the entire regime.
  • Despite using ‘Made in China’ tags on its textiles exports, North Korea is thought to do most of its trade – around 80% in fact – ​with neighbouring China.
  • According to the OEC, it exported $2.34 billion of goods to China in 2015. The report claimed the other main export countries for North Korea are: India, which took 3.5% of its exports; Pakistan, which took 1.5%; Burkina Faso, which took 1.2%, and Saudi Arabia, which took 0.89%.

Corruption is rife

  • It’s unsurprising that Transparency International, the global coalition against corruption, ranks North Korea as the ninth most corrupt country in the world in its 2019 Corruption Perceptions Index, only ahead of some of the world’s most war-torn countries such as Syria, Sudan and Afghanistan.
  • With permission being required for nearly every human movement in North Korea, bribery is said to be commonplace between officials and citizens, and the money most likely lines a government pocket or two.

Making and trafficking drugs

  • Among the alleged illegal activity of the Third Floor is the production and selling of drugs. It has long been believed that North Korea has both manufactured and trafficked narcotics for cash, and it may continue to do so as sanctions are ramped up, restricting the trading of legitimate goods.
  • It is unlikely that the state will clean up its act anytime soon given that lenient border controls and high demand for drugs make it an easy and lucrative means of making money.

Forging banknotes

  • Not all illegal activity in North Korea is drug-related though. Some North Koreans have also become quite the experts at banknote forgery.
  • A lot of knowledge and expensive machinery goes into replicating notes to such an exacting standard, and the fact that multiple experts have been needed to spot that the reproductions aren’t real notes suggests that government resources were most likely responsible.

Stocking up on crypto-currencies

  • North Korea hasn’t limited itself to hard cash. Cryptocurrency is also thought to offer another income stream for the state. The regime has previously been suspected of hacking, and now it has been suggested by the Financial Security Institute (which is backed by the South Korean Government) that North Korea is stealing the digital currency Bitcoin and other cryptocurrencies

Hacking is allegedly big business in North Korea

  • It’s not just cryptocurrencies that are being hacked. North Korea is alleged to be behind many international hacking attacks in a bid to find new flows of revenue to replace those cut off by sanctions, with the US administration claiming it was behind the WannaCry ransomware attack of 2017.
  • A confidential UN report in 2019 revealed $2 billion had been stolen by the country’s hackers for its nuclear weapons programme.

Slave labour abroad and not paying poor for their work

  • And it isn’t just in their home country that North Korean workers are being underpaid and mistreated to benefit the rich elite.
  • Working conditions are harsh and salaries are virtually non-existent, with constant surveillance ensuring that labourers are worked to the bone. Money is exchanged for the excruciating work, but it goes straight to the North Korean government.

India –North Korea Relations

  • India signalled improved relations with North Korea by sending Minister of State for Home KirenRijiju to an event commemorating North Korean national Independence Day in 2015.
  • For several decades, India’s bilateral relations with North Korea have been tense, owing primarily to the latter’s close strategic ties with Pakistan. Rethinking is part of a political consensus based on India’s long-term interests.
  • North Korea is thought to have one of the world’s largest deposits of minerals and rare earth metals required by India’s IT industry and electronic giants.
  • India is a critic of North Korea’s nuclear proliferation record and has also voiced concerns about de-nuclearization and disarmament. India has repeatedly condemned North Korean nuclear tests and views its nuclear programme as a threat to regional security. But on the other side, India has provided $1 Million in medical assistance to North Korea during the COVID-19 pandemic in the country.

Mains model Question

  • With no unpleasant historical memories or geopolitical rivalries between them, India-Nouth Korea relations have limitless potential. Comment

References