How North Korea is getting richer despite sanctions - Asia Specific podcast, BBC World Service

Since the war in Ukraine started, North Korea. has found a close friend in Russia. And Jake, there's this new bridge that's about to open. That's right. Mariko. They had rail bridge before, but this is the first road bridge between North Korea and Russia. Although satellite images suggest that the construction. on the Russian side may still not be finished. But closer ties to Moscow, not just China, has been a boon for the North Korea's economy. And that's quite different from what many of us think of North Korea, isn't it? Chronic food shortages and economic isolation and so on.

So we're asking, is this a genuine transformation? As always, I'm Mariko in Singapore. and this is Asia Specific from the BBC World Service. Twice a week we bring you Asia Pacific stories unpacked by those who know them best. We'll have two North Korea experts with me today, our correspondent in Seoul, Jake Kwon. Welcome back. Hey, thanks for having me.

Also in the South Korean capital is Dasl Yoon from the Wall Street Journal, who's recently written a piece about North Korea's. I don't know if we can call it economic boom, mini boom, maybe. Thank you so much for coming back on the pod, Dasl. Thanks for having me. I think it's fair to say. that there's a perception that North Korea is a poor country. And I have some data, the World Bank listing it as a low income country. The United Nations estimating its economic output per person. to be less than 700 USD a year.

So that's 23 times less than China, or almost 60 times less than South Korea. So it's obviously not very wealthy. But Dasl, you recently wrote this piece about how the country's economy, or at least in the capital, the economy, seems to be flourishing. So can you just tell us what you learned in your reporting? Yeah. Um, we've learned that there's been sort of a genuine transformation. in North Korea where we've been seeing a lot of new housing, smartphones being used in the capital city of Pyongyang.

People using QR payments. A lot of things. that we didn't actually hear about, let's say like five years ago. Um, there's more nighttime illumination. There's been GDP growth. So data has been showing that, you know, billions. of dollars are being made from North Korea's arms exports to Russia, troop deployments to Russia, cyber theft. Um, so, you know, people visiting Pyongyang, they are seeing this sort of. carefully managed image of, uh, growth, economic growth within the country.

and a lot of the people that we interviewed for our story. had been inside North Korea, had been in Pyongyang. let's say in the past year or two. Um, we've had tour guides and also visitors. We've spoken to diplomats. So generally they don't go around alone, but a lot of what they've seen and described to us. has been that there's been sort of this transformation, economic growth happening inside North Korea. And I guess we all saw the pictures from Pyongyang being broadcast around.

the world when the Chinese leader, Xi Jinping, was there to meet Kim Jong Un. But is this a genuine transformation? I mean, we you say that it's in Pyongyang. So is this actually kind of a, you know, carefully choreographed picture that we're getting just from the capital? Yeah. I think it's important to remember that UN reports, they tell us nearly half of the population is malnourished. A lot of this growth, again, is inside the capital area of Pyongyang.

And so we're not seeing much of what's going on in the rural areas though. You know, Kim Jong Un has been trying. to make the rural areas experience more growth as well. But this is a carefully crafted image. A lot of the visitors and the tour guides and also just tourists. in general who are going inside the country are moving around with guides. So they're being shown a certain image of North Korea. Um, not only the malnourishment, but North Korea,

as we know, is one of the countries with the most rampant human rights abuses. and a lot of the construction boom that we've seen a lot of the, you know, new housing, new restaurants, a lot of it is likely being built, uh, with forced labor. Jake, every time we talk about North Korea, we say. that it's really difficult to verify exactly what's happening in the country. But in terms of what the state media says about.

this current economic situation, what have they said so far? Well, you know, every day when you look at KCNA. or the Rodong Sinmun, these are North Korea's state media reports. You know, if you flip through those pages, you see actually. a lot more reports about their economic situation rather than them talking. about the US or South Korea or the military, essentially, etc. and it's usually a very kind of congratulatory fanfare about.

how they're, you know, corn production has gone up. or how they're building new high rises in certain neighborhoods. And, you know, these are the messages. that they are broadcasting to their own people. Uh, these are messages that are broadcasting to the outside world as well. And like you said, I think it's very important to preface all of this. by saying that there is no official statistics. that are published by North Koreans for us to see. And a lot of what we understand about the situation is. by examining the satellite images, talking to the escapees as well.

as the Western kind of tourists or tour guides who go into North Korea. Or more recently, we saw the Singaporean foreign minister who was there, and he posted on his social media the video he took while he was in Pyongyang. Uh, and, you know, we have to look at these kind of limited evidences, uh, to kind of make our best understanding of what's happening there. And from what we see, you know, it's not just a Potemkin village. Uh, some of these things are real.

Um, and the limitation, as Dasl pointed out, is what is happening. in the rural area of North Korea. that is going to be a lot more limited than what we can see about Pyongyang. But from what we've seen in Pyongyang, I think the the new developments, uh, the stories about how there are now traffic jams in the streets. of Pyongyang that because there are so many cars there now, uh, how there are new, you know, bars and restaurants and, you know, the PC bang or, you know, as we may know, cyber cafe, they're now like really a big business now.

I don't think those are being disputed. I think it is pretty clear that these are real, especially in the capital city. Uh, there is a real boom. Jake, Dasl just talked about how North Korea's closer ties. to Moscow may have helped to boost its economic growth at the moment, at least in the capital. So is that the main reason? do you think? I think that's one of the definitely big reasons. Look, the INSS, this is a think tank that is related to South Korea's spy agency.

They estimate that North Korea, when they send troops, as well as ammunition. and other weapons to Russia to help them fight the war in Ukraine. Uh, since then, they have probably made. anywhere between seven to $14 billion in profit from that money. Now, if you think about how big North Korea's economy is, which is around $35 billion estimated, that's one third of their economy. So this is obviously going to have a huge impact on North Korea's boom.

Uh, and we're looking at more and more kind of trade happening. with China as North Korea is now reopening after the Covid time. And we can also, you know, not mention. the the crypto theft that's been happening. Uh, there's a pretty well documented evidence to suggest. that North Korea has been stealing anywhere between five to $7 billion. in crypto since 2017. So, you know, all of these is going to have significant impact.

on North Korea's economy, considering how small it is to begin with. How does it work, though? Dasl? You also talked about those crypto theft. But once they have that digital assets, how does it then become, I guess, usable cash by the state. When it comes to. Cryptocurrency? The money that they're stealing. I mean, I'm so glad Jake threw out all those numbers for us here. Um, just sort of give us a sense of how much money they're actually making. But the process of stealing cryptocurrency doesn't-. It's not just about you steal it and then it's cash, right?

There's a whole process of money laundering that can take months, if not years, for North Korea to take the money they stole through hackers, which are oftentimes stationed in Russia or China. Um, so they have the platform to do it. And then once they are able to steal that money, they need, They need time to launder that money. through different, um, bankers and brokers, uh, and also underground banks that will cooperate with North Korean agents.

in order to, you know, launder that money. into clean currency, basically, so that it can go to the regime. And we have, um, MSMT or UN reports telling us. that a lot of this money that's, um, turned into cash. will eventually go into North Korea's weapons program. But this is still just an allegation, isn't it? I mean, even though, as both of you pointed out, this has been, you know, investigated by various Western institutions, North Korean government hasn't exactly admitted stealing crypto.

Is that right? What have they said so far about this? When the when the international body put out a statement, you know, accusing North Korea of crypto theft, uh, North Korea responded by saying that this is a political tool, meaning the Western world, like the US, is using this to slander North Korea. I think the word they used is this is. this accusation is an absurd slander of North Korean regime. But Dasl, I mean, you were talking earlier about how North Korea,

I guess the most conventional, traditional way of them making money. was through trade with China and now this relationship with Moscow. But how did crypto come into the play? Is this kind of the easiest way for the regime to make money? Is that why they got into it? I mean, easy. Is probably not the right word, but. North Korea deploys its most skilled IT workers abroad. These people are trained, um, from a very young age. to they go through special middle schools, uh, special high schools.

They go through, um, uh, different, uh, you know, technical processes, uh, to acquire these skills. and study these skills to kind of be stationed abroad. The government prepares them for this role from a very, very young age. As we hear from defectors, for example, who have done this work in the past. And so, um, it's not an easy process, but it is a way to bypass sanctions, right? Because we are in an era where both Russia and China are refusing.

to, um, impose any additional sanctions on North Korea at the, uh, at the United Nations, they have veto power. and they're vetoing all of the additional sanctions. that other Western countries are putting forward. And so North Korea has a little bit more room to, um, be stationed in these countries to go about, uh, this like, like Jake said, it's not like North Korea is out there announcing to the world, oh, we made, you know, this many billions of dollars, uh, from, uh, cryptocurrency theft. They are simply saying, you know, we,

they don't comment on the amount or, uh, the methods that they are doing it, but it has become a huge, huge, um, business for them. And also, a big part of what is actually funding their weapons program, including including their missiles and their nuclear program. What I'm curious to know is, though, when money, new money, comes. into a country like North Korea, where does it go? I think there is one aspect of North Korea called gift politics,

where the Kim, you know, the Kim family uses this money. to gift these luxury goods. to the immediate kind of high upper echelons of Pyongyang. Um, they, you know, Kim Jong Un's father was one. of the biggest, biggest importers of Hennessy cognac, right. They were importing upward of $800000 worth of cognac during his regime. And it wasn't just being drunk by Kim Jong Il himself.

These were going to, you know, the military officers, uh, high officials in the party. Um, and, you know, whenever there is a national holiday, uh, or maybe the birthday of the leader, they give out, you know, um, Flowers, eggs, uh, food items, candies, etc. to the Pyongyang citizens saying that this is a gift from the leader himself. So these revenue are very efficiently used to make sure. that Kim Jong Un and his family stays in power. So, you know, these.

Um, so I guess the point I want to make is that in certain ways, Kim Jong UN for the leadership, North Korea is a very successful state. Also just, you know, primarily it's it's the state. making the money at the end of the day, right? But the Kim regime wants to keep the elite happy and in line. And I think that's why we're seeing improvements in the capital city. I mean, it's the same anywhere else, right, in the world where, um, a lot of the growth is going to be focused in the capital city.

You know, in North Korea, we're seeing more electricity, uh, more nighttime illumination. For example, we see. from satellite imagery, restaurants, leisure complexes, um, what Kim Jong Un calls modern hospitals. And so, you know, there's, there's no like, sure way. of knowing how or if the money actually like trickles down. to ordinary North Koreans, for example. But, you know, Kim Jong Un has repeatedly emphasized. that he wants to improve people's living standards.

Um, and yes, a part of it is, you know, propaganda, the type of thing you want to be seeing. in North Korean newspapers, the type of thing you always do see. But at the same time, um, there is this goal to sort of portray. the North Korean state as one that, you know, cares about the people. It's not just about the capital city. And that Kim Jong Un wants to expand and. take this growth beyond the beyond the capital city. I think North Korea has faced many, many sanctions, one. of the most sanctioned countries probably in the world.

And yet it has found various ways to make money. So does that mean that sanctions are no longer working? And maybe the international community has lost some kind. of leverage against Pyongyang? I think we need. To I mean, think a little bit about why the sanctions aren't working, right? I mean, we've already discussed this, but currently Russia is the cash cow. You know, with North Korea sending munitions and troops they've secured. Uh, you know, Jake said between seven. to $14 billion, uh, tech transfers are included in that.

But we have China as sort of the main benefactor, the main benefactor, where the majority of North Korea's trade is coming from China. The electronic goods, the components. But, um, these two countries are essentially blocking not only additional sanctions. They are also willing to flout sanctions for the sake of, you know, North Korean labourers being stationed in their countries also for. their, um, missile program, uh, while their missile program is expanding, that Russia and China are not denouncing any of that activity.

I mean, I do think it complicates things. for countries that are trying to engage North Korea, whether it's the US or South Korea, where in the past they have used economic pressure and also sanctions. in order to negotiate with North Korea over its nuclear program. But that's just becoming more and more difficult, right? Because if if other countries at the UNSC are not cooperating. with this sanction sanctions regime, then it's essentially impossible for them to achieve the goal of, you know,

what sanctions are meant to be doing. I think the reason, you know, Dasl's piece about North Korea having this boom really made a kind. of big impact and had a lot of responses, was because the one pillar of how do we deal with North Korea? One strategy is called strategic patience, that if we simply don't interact with North Korea, if we just leave them alone, they might collapse on on their own.

And I think this is one kind of counterpoint to that school of thought. And it does have like a major implication on how do we go forward. with North Korea when they are, you know, improving their missiles, improving their nuclear capabilities and, you know, circumventing UN rules, etc., and engaging in thefts. Um, and yeah, and this is, this is why this is a very important question. This is a very important topic and it's going to have a lot. of implications on South Korea or as, as well as other like Western countries.

How would they engage with North Korea? I know it's really difficult to verify these things. So thank you so much for sharing your insights, Jake and Dasl. Thank you. Thank you for having us. You've been watching Asia Specific from the BBC World Service. with me, Mariko Oi in Singapore. If you have any questions or thoughts on what we covered in this episode. or any other stories from the region, please leave us a comment below. You can also get in touch with us on email asiaspecific@bbc.co.uk.

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