A Chinese Businessman on Doing Business Inside North Korea

The land route between Hunchun in China and Najin-Sonbong in North Korea recently reopened after being closed for nearly three years due to the COVID-19 pandemic. The reopening has allowed Chinese entrepreneurs who built factories in Najin-Sonbong, but were unable to operate them due to the pandemic, to start operating again.

Earlier this month, Daily NK interviewed a Chinese businessman who built a factory in North Korea to produce finished products for export to China. The businessman hired cheap North Korean labor and made products using raw materials imported from China. The man’s identity cannot be released due to security concerns.

According to this businessman, Chinese cargo trucks enter North Korea with raw materials and then re-enter China filled with various finished products, such as clothing, bags, shoes, and wigs.

The UN Security Council completely banned the export of textiles and finished clothing from North Korea through Resolution 2375, which imposed sanctions on Pyongyang following its sixth nuclear test in 2017.

However, according to the Chinese businessman’s account, textile products produced in North Korea appear to be openly exported to China.

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Even packaged goods that had been held up in North Korea due to the pandemic-related border closure are now being exported to China via land route. The businessman said that Chinese businessmen are currently focusing on recovering the losses they suffered during the North Korean border closure.

The following is the full Daily NK interview with the Chinese businessman.

UN Security Council Resolution 2375 completely banned North Korean textile exports. Why are you still running a company that imports textiles made in North Korea using raw materials from China?

It is not easy for me to change what I make because I have already brought equipment to make outerwear, shoes, bags and other items to North Korea and built a factory. I brought 10 million RMB [around $1.4 million] in North Korea to build the factory and started the business by lobbying North Korean cadres. That makes it difficult to suddenly shut down the factory or switch to another product. I think it is natural for any businessman to recover the money he has already invested.

North Korea doesn’t have a stable political environment for foreigners to do business, but because wages are so low, it’s worth a try, even if you have to face risks like sanctions. Of course, we had no choice but to suspend business due to the unexpected COVID issue, but even now, it is much more profitable to build a factory in North Korea and make items there than to run a factory in China.

Are there many Chinese businessmen who want to invest in North Korea today?

There are far fewer Chinese interested in investing in North Korea than before COVID-19. Chinese merchants suffered heavy losses when North Korea completely sealed its border and unilaterally banned private trade. [over the past three years]. People who are aware of [North Korea’s actions] They are negative about directly investing in North Korea, but businessmen who have never done business with North Korea or are unaware of the internal history are still interested in investing there.

Recently, for example, a person who runs a garment factory in Guangzhou visited me to ask about building a factory in North Korea. I told him that people who have already built a factory in North Korea and invested should keep their business going, but it is very risky to bring new equipment to North Korea and build and operate a factory. You never know what trade-related measures North Korea will enact, and if China restricts trade with North Korea, there’s really nothing it can do. [The business environment in North Korea] It is not stable

Have there been cases where Chinese businessmen who have invested in North Korea have been unilaterally expelled from the country without being able to recover their investments?

Of course. There was a person from Dandong who invested in a North Korean mine. He invested almost 30 million RMB [$4.3 million], and then found rare earth metals in the mine. Suddenly, because there was money to be made, North Korean authorities said that the land was originally a military installation and foreigners were not allowed to do business in the area, so [had to] leave everything there

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Those kinds of unfair situations sometimes happen, but because setting up a manufacturing plant with North Korean labor is beneficial to North Korea and profitable for foreign entrepreneurs, such businesses tend to be more problem-free than [investment] in specialized industries.

How much do you pay your North Korean workers? And have you set aside costs that you must regularly pay to the North Korean authorities?

When I first built the factory, I spent a lot of money, but since then I haven’t made regular payments to North Korea. The people who run the factory really have my back, so I give them lots of gifts. I regularly give them gifts of 10,000 or 20,000 RMB [around $1,456 to $2,913].

I pay workers between 700 and 800 RMB [around $101 to $116] one month. People who have run factories in China would know this, but that’s a really low salary. If you hire a Chinese person to make an item, the head of the company has to pay social security, but with North Koreans, you only have to pay the monthly salary, so you can save on payroll. If the North Korean authorities allowed foreign entrepreneurs to do business on a stable basis, I think there would be a queue of people in China who would want to build factories in North Korea.

This article first appeared in Daily NK, that contacts multiple sources inside and outside of North Korea to verify the information. The Diplomat was unable to independently verify the claims.

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