The underground pipeline funnelling capitalism to North Korea

One defector living in South Korea uses a clandestine funding channel to send hundreds of thousands of dollars to help dozens of North Koreans open small businesses, such as noodle shops and grocery stores.

Last year, he shipped more than 3,000 Chinese LED desk-lamps, chargeable with 12-volt solar panels, to three North Korean entrepreneurs. The defector, who escaped through China in the early 2000s, has also sent acupuncture needles, handbags, hair dye and lingerie procured cheaply or through donations.

Under Kim Jong-un, North Korea has allowed a growing number of semi-legal markets known as jangmadang, where individuals and wholesalers buy and sell goods they have produced themselves or imported from China.

The markets have improved the quality of life for many but also makes them less reliant on the Soviet-style planned economy, undermining the power of the state. Markets also facilitate trade of contraband foreign media through USB sticks and DVDs.

“The North Korean business owners I am helping can be an alternative group to build sound capitalism,” said the defector, who is in his 40s and declined to be named on safety grounds.

The defector, who does not seek a profit, said he has financed several grocery stores with investments of 20,000 to 30,000 yuan (Bt100,000 to Bt150,000) in rural towns, and more in Pyongyang.

‘Jangmadang generation’

A South Korean government-commissioned report last year proposed nurturing North Korean private businesses as a way to drive reform. The plan, which is not government policy, envisions microfinance for start-ups and partnerships with big South Korean firms.

Contact with anyone in the South, however, can be punishable by death in North Korea. That’s because the 1950-’53 Korea War ended in a truce instead of a peace treaty, leaving the two Koreas in a technical state of war.

South Korea also forbids its citizens from trading with the North but turns a blind eye to remittances estimated at $10 million a year sent to relatives by many of the nearly 30,000 defectors in the South.

Hong Soon-jick, a research fellow at state-run Korea Institute for National Unification, said defector financiers can use the same funding routes.

“This can accelerate marketisation and circulation of information,” he says. 

The approach is a departure from the distribution of leaflets and USB sticks and radio broadcasts that are more typically used by anti-regime activists in the South to win the hearts and minds of North Koreans.

In a similar vein, the US State Department recently sought proposals to fund projects aimed at promoting democracy in North Korea and encourage young defectors living in the South and who grew up among the “jangmadang generation” to reach out to young North Koreans.

One such young defector, Seoul-based activist Ji Seong-ho, has been sending funds of $300 to $500 at a time for North Koreans to open food stalls  in rural areas.

The first defector, who uses a clandestine money channel, typically works with middlemen who wire money to banks in China, where it is collected by agents and carried across the border.

A few years ago, he sent several North Koreans cupping-therapy machines, used in Chinese medicine, which he bought in the South for around US$20 (Bt700) each. They sold at a mark-up of more than three times in North Korea. The defector’s secret project started in 2006 when he bought a used 2.5-tonne truck in China for 5 million won (Bt160,000) and sent it to a North Korean who then used it to make a living carrying goods.

In 2014, a deep-pocketed sponsor the defector declined to identify began supporting his effort. He tells the North Koreans he helps “not to be greedy, help other poor North Koreans and gain respect,” he says. “This is maybe more effective than thumb drives, because it directly supports livelihoods.”