North Korea's economy: How does Kim Jong-un's communist state survive financially?

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North Korea has again been threatened with tough sanctions after the rogue state sparked international outrage for firing a missile over Japan.

Tensions between North Korea and the United States have reached critical levels over the past few months, with the rogue state firing the missile on Monday.

Prime Minister Theresa May today strongly warned Kim Jong-un’s dictatorship further sanctions were imminent, saying Britain needed to “double its efforts” to put pressure on North Korea.

But despite sanctions being rolled out by the United Nations and US since North Korea’s first nuclear test in 2006, its economy grew by 3.9 per cent this year, according to the Bank of Korea.

An image in Tokyo showing the direction of the North Korean missile launch (REUTERS)

The Standard spoke to Anwita Basu, an expert in Asian economics and politics for the Economist Intelligence Unit, to find out how North Korea’s economy survives western pressure – and what it means for the future.

How does the North Korean economy work?

According to Ms Basu, economic growth in North Korea is largely down to the remarkable levels of state control in all aspects of life.

The control means that the economy is maintained largely without the positive effect of imports which helps western democracies flourish.

The growth is largely stemmed by domestic mining and energy, while China has also increased its exports to the state in recent years.

Theresa May: China must put pressure on North Korea to halt missile launches

Ms Basu said: “North Korea imports the majority of its goods from China – but it’s estimated. It doesn’t release its own data and a lot of that comes from observers such as Bank of South Korea.”

She added: “Everything on every level in North Korea is controlled so even the amount of income people receive is controlled.

“Because it’s a heavily controlled state it can create growth in that sense.”

Ms Basu also says there is evidence to suggest the state is one of the few that can – and does – sell Soviet military equipment abroad. Some African countries are believed to have taken part in such arms dealings ,she added.

She said: “They circumvent loopholes in US sanctions. There is no way of stopping it, though this is all from circumstantial evidence.”

What are the United Nations sanctions and what effect do they have?

According to Ms Basu, sanctions typically involve targeting iron and coal imports to North Korea.

But aid and food is still sent to the state, with most of the sanctions based purely on economic imports to North Korea.

Because of this and the dictatorship’s level of state control, Ms Basu says such sanctions in reality have little effect on the economy or way of living in North Korea.

US President Donald Trump has threatened North Korea with “fire and fury” over recent missile threats (AFP/Getty Images)

She said: “The big difference is that the sanctions only target the external sector and that doesn’t have a positive impact on the country.

“What the sanctions will do is effect imports so some of the equipment becomes more expensive. But there is still quite a swell going and the state does have ways of controlling prices.

“The sanctions aren’t going to bring the economy to its knees just yet.”

In fact, this week some business owners have warned the measures have a detrimental effect on Western economies.

A report by CNBC today claimed new sanctions would stifle global supply chains.

Alex Capri, a visiting senior fellow at the National University of Singapore’s business school, told the US broadcaster the United States’ changes to the supply chain would be “hard and costly” to enforce.

Why does the United States not impose tougher sanctions?

Given its standing as the world largest economy, the United States technically has the power to impose heavier sanctions on the state.

But according to Ms Basu, imposing tougher measures coupled with rising tensions could antagonise an already unstable country.  

North Korea nuclear program is already accelerating and Ms Basu expects them to be a full nuclear power possibly as early as next year – something for the United States to fear.

She said: “What is likely to happen is that North Korea will have full nuclear capability by the end of 2018 or early 2019. There is no way of stopping that.”

She added: “What a lot of the countries in the UN don’t want to do is destabilise the regime. You just don’t know how they are going to react.”

What next for relations between the United States and North Korea?

Tensions between the United States and North Korea appear to have reached dangerous levels in recent weeks, with both countries’ leaders threatening each other with military action.

Recently, President Donald Trump said the state would face “fire and fury” like the world has never seen if it followed through on a threat to bomb US territory Guam.

But Ms Basu said war was still only a very distant possibility, with Mr Trump at odds with his own administration on the issue and Kim Jong-un simply pressuring for recognition.

Despite their growing nuclear arsenal, she said both the economy and military of North Korea is not ready for war.

Ms Basu: “It’s not in North Korea’s interests to start a war. What they basically want is to survive as a regime and then be recognised as a nuclear state.

“It’s quite a difficult time. The problem is once [North Korea] achieve their goal they will have nothing but their state agenda.”

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