Kim Jong Un’s dependence on illicit Chinese business networks and aid from Beijing is set to increase as the North Korean leader faces the country’s worst economic crisis in almost a decade, analysts say.
The 36-year-old dictator said last month that North Korea was struggling to meet its economic objectives. The admission was a rare concession of failure and a blow to his hallmark policy of economic growth alongside nuclear weapons development, a dual-track known as the “byungjin line.”
The combination of tough US and UN sanctions, coupled with the fallout from the coronavirus pandemic and the subsequent plunge in legal trade with China — as well as a series of recent typhoons and flooding — has increased the importance of revenue from North Koreans operating businesses in other countries, remittances from overseas workers and cash from cyber crime.
“It is probably worse than it has been for a long time . . . Things do look very, very bad, and they looked like they were bad before the coronavirus hit,” said Peter Ward, an expert on the North Korean economy at the University of Vienna.
North Korea has not reported a single confirmed coronavirus infection within its borders, a feat met with scepticism by some international experts.
Data on the state’s finances are rare and often unreliable. This means analysts are reluctant to provide estimates of the potential respite from sanctions-busting revenue.
But a report published this month by the Royal United Services Institute, a London-based think-tank, found that a network of 150 Chinese businesses had a central role in facilitating North Korean access to international markets. It said they were involved in about $2.7bn worth of shipments between 2014 and 2017, representing about 20 per cent of the $13.9bn value of North Korea’s trade during that period.
Several “red flags” from the business operations, such as co-located addresses and phone numbers, as well as minimal public information, indicated the groups were front companies for North Korean interests, RUSI said. The report also noted that 135 of the companies were still registered as active on Chinese corporate databases, suggesting many remained operational despite the imposition of US and UN Security Council sanctions.
Separately, four US government agencies last month released a joint alert over the resumption of activity this year by a group of “North Korean government cyber actors” who have attempted to steal as much as $2bn over the past five years. The group, dubbed the BeagleBoyz, target cash from ATMs in cyber attacks that have also left banks’ computer systems inoperable, the agencies said.
Experts stressed, however, that the fallout from the coronavirus pandemic on global economic activity would likely hit North Korea’s overseas business interests, which are predominantly in China, as well as North Korean workers in China and Russia.
“All these types of networks are hit less severely than other kinds of economic activity, but it doesn’t mean they are not shrinking,” said Andrei Lankov, a North Korean expert at Kookmin University in Seoul.
Daniel Wertz, a programme manager at the National Committee on North Korea, a US think-tank, said “travel restrictions have made it far more difficult for North Korea to send workers and trading network operatives abroad, so the regime has had to rely on those overseas networks in place at the beginning of the year”.
Mr Lankov said that despite the economic hardship facing North Korea’s 25m people — 60 per cent of whom already face food insecurity, according to the US government — China would not let the situation deteriorate into a political crisis. Beijing has made a strategic decision to support Mr Kim as part of a “buffer” against the US and will ensure Pyongyang has access to food and fuel, he added.
“They will just send enough food, just to make sure North Koreans will be malnourished but not starving to death,” he said. “They will send enough fuel, just to make sure vital production can continue. They will send basic supplies, just to make sure that North Koreans will get angry and go out on the streets.”
Mr Ward added that Mr Kim theoretically had the option to ease pressure via economic “liberalisation” — a move that would cut against a broader reassertion of centralised control.
“They could look at the issue of structural reform at home — but I don’t think they will; there are very few indications that they are thinking about it,” he said.
Additional reporting by Katrina Manson in Washington and Kang Buseong in Seoul