North Korean Textile Manufacturers Rip Off Chinese Companies

2014-11-20
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Workers at a clothing factory read the newspaper at an undisclosed location in North Korea, Jan. 2011.
Workers at a clothing factory read the newspaper at an undisclosed location in North Korea, Jan. 2011.
AFP Photo/KNS-KCNA

Manufacturers in North Korea contracted to produce export-bound apparel for companies in China are selling some of their finished products at bargain prices in the tightly-controlled country’s black market, according to sources inside and outside North Korea.

Apparel such as coats are sold by the manufacturers without the knowledge of the Chinese companies and made from raw material skimmed off from the companies, the sources told RFA’s Korean Service.

The North Korean manufacturers are known as toll processors and use specialized equipment to produce the apparel for the Chinese companies, which supply the raw material.

Chinese textile companies use factories in North Korea, where labor is much cheaper, to produce high quality, big-ticket items such as winter coats that can sell for more than U.S. $100 in China.

But these expensive items are sold on the black market in North Korea at highly discounted rates, the sources said.

A Korean-American based in China said he supplies to his North Korean manufacturer 10 percent more fabric than what is needed to complete an apparel order so as to compensate for production-related losses.

But the toll processor returns only 90 percent of his order, he said, adding that the remainder of the material he supplies is pilfered.

“I calculate that about 20 percent of the order volume remains with the processing company in North Korea,” he told RFA. “It’s hard to do consignment business with North Korea if I don’t prepare for these losses.”

Skimmed-off material

It is believed that powerful toll-manufacturing factory managers and their loyal employees skim off the material and apparel and sell finished goods, such as parkas, in black markets where ordinary North Koreans can afford them.

In return, low-paid factory employees can supplement their extremely meager incomes and buy food and other daily necessities with money they earn from selling the apparel.

One North Korean source who was visiting China in October and was delayed from returning home because of an Ebola border control check told RFA that he had purchased a high-quality parka on the black market in his country.

The parka, made with fine fabric and meticulous stitching, could sell in Chinese department stores for more than 1,000 yuan (U.S. $163), he said.

“This parka is produced by toll processing, but sold on the black market,” he said.

He said foreign enterprises that send material to North Korean toll manufacturers usually provide more material than their orders require to compensate for a certain amount that they believe will be lost in the manufacturing process.

But “after delivering the volume of orders, many complete products made from surplus materials are left over,” he said, implying that the items are sold in North Korea on the black market.

Another source in China gave further evidence of such apparel being sold on the black market by pointing out that some members of North Korea’s upper class have been influenced by fashion trends that emerge from such clothing.

“Some North Koreans can follow foreign trends by buying clothing that finds its way to the black market,” the source said.

Smuggling

North Koreans have had to rely on smuggling along the country’s border with China for scarce items such as food, clothes, and used electronics.

More recently, the Chinese have been smuggling in cellphones, PCs, washing machines, and refrigerators, according to the website North Korea Economy Watch, citing information from Huanqiu, the website of China’s nationalistic tabloid The Global Times.

Foreign companies in China, the Netherlands, France, Germany, and South Korea have produced various types of clothing in North Korea, making garment processing one of the country’s most successful export-related activities, according to a 2012 report by Washington-based Johns Hopkins School of Advanced International Studies’ website 38 North.

They do business there to take advantage of North Korea’s highly skilled labor force and the lowest wages in Asia, the report said.

“Clothing now accounts for a large portion of North Korea’s light industry sector and is a major export sector,” the report said. “It is also a successful foreign investment activity, with Chinese companies taking the lead in using North Korea as a production base.”

North Korean garment processors produce a large variety of clothing, including undergarments, sportswear, winter coats, suits, knitwear and uniforms with the specific quality of products made according to client specification, it said.

The companies have a wide range of machinery for cutting, sewing, sealing, ironing, pressing, and embroidery, and use computer-aided design and computer-aided manufacturing technology, the report said.

At the time the report was published, North Korea had about 15 large garment-exporting enterprises that operated several factories around the country, and dozens of medium-sized companies.

Reported by Joon Ho Kim for RFA’s Korean Service. Translated by Hanna Lee. Written in English by Roseanne Gerin.

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