International Commerce and Dark Networks in East Asia: China and North Korean Economic Networks


by Dr. Justin Hastings
CSC academic group: International Relations

International Commerce and Dark Networks in East Asia: China and North Korean Economic Networks

Justin is a lecturer with the Faculty of Arts and Social Sciences, Department of Government and International Relations. His research interests include terrorism, smuggling, maritime piracy, insurgency, gray/black markets, and nuclear weapons proliferation in Southeast Asia (especially Indonesia, Singapore), Northeast Asia (especially China, Taiwan, Korean Peninsula) and East Africa. He is the author of No Man’s Land: Globalization, Territory, and Clandestine Groups in Southeast Asia (Ithaca, NY: Cornell University Press, 2010).

East Asia is a region that poses a security paradox: some of the most vibrant, technologically advanced economies in the world coexist with state decay and failure, while some of the globe’s most stable and low-crime societies harbour sophisticated transnational criminal and terrorist networks. In this project, I am trying to understand one aspect of this paradox, namely the role that the dynamic economies of the region play in shaping the dark political networks that are threats to regional stability.

How do East Asians illicit political actors use commercial networks and methods to accomplish their goals? How does the nature of East Asian economic development help, hinder, or otherwise shape illicit political actors’ structure and capabilities, and the threat they pose? Most relevant here are the networks emanating from North Korea, often state-sponsored, that allow the North Korean regime (or its citizens) to raise hard currency through sales of illicit goods such as weapons, to launder money, and to smuggle people and goods to and from North Korea. In the project, I am tracing how illicit political actors such as North Korean agents interact with actual legitimate cross-border trade networks: how they use East Asia’s economic dynamism to their advantage, and how they are trapped by it. This is especially pertinent for state-centric networks such as North Korea’s, since the state is able to create a business environment within its territory that enables the networks’ operations, and state-supported firms are able to establish ‘legitimate’ business relationships in other countries.

Outside of their territory, ‘rogue’ states create illicit networks to accomplish otherwise illegal activities, to bust sanctions, and to buy and sell illicit goods or technology for security or financial reasons. These networks differ from ‘standard’ non-state illicit networks in that they are not simply criminals or terrorists who have suborned a highly corrupt state, but are actually created or at least used by the state to serve financial or political ends, and thus have the resources of a state at their disposal. North Korea is an especially good example of this. It is arguably the most politically isolated country in the world, with what is theoretically one of the world’s least globalised formal economies. Yet, through its range of clandestine and overt networks, North Korea is surprisingly well integrated into the regional and global economies, creating security ripples far beyond its shores. The networks in which North Korea is enmeshed can be turned to state-sanctioned ends, thus providing other states with labour, or providing the North Korean state with components for its nuclear weapons, or with hard currency through counterfeiting, drug trafficking, and weapons sales.

quote As the country that maintains the closest social, political, and economic relations with North Korea, China is where a large portion of the illicit networks emanating from North Korea are located.

Yet these networks can also be turned to non-state ends, as the North Korean state at times seems to have lost control of some of its networks, leading to outflows of technology, weapons and other illicit goods, and engages in surprisingly poor regulation of its shipping industry. The partial collapse of the North Korean state has also at times led to illicit transnational networks extending into other countries, as gray markets during famines have provided transportation to migrants, and consumer goods and food to North Korean citizens.

What does this have to do with China? As the country that maintains the closest social, political, and economic relations with North Korea, China is where a large portion of the illicit networks emanating from North Korea are located. The networks created by the North Korean state itself, consisting of the state-linked companies, bank accounts, and diplomatic outposts that launder money and transport weapons and other goods for sale (to raise hard currency for the state) and for supplies (to support North Korea’s development and military modernization programs) are often located in China, use China as a logistical or financial launching pad, or have relationships with Chinese firms. Likewise, the non-state networks that North Korean citizens use to escape from North Korea, to obtain food and supplies, and to send money back to their families when abroad, almost entirely go through northeastern China, resulting in a complicated problem for China, particularly as the collapse of the North Korean state could lead to a wave of refugees in the areas in which these networks already operate. North Korean networks also extend through Hong Kong’s transhipment port (as the hub of much of Northeast Asian commercial transportation networks) and Macau financial institutions, as demonstrated by the Banco Delta Asia incident, in which the US imposed sanctions in 2007 on the Macau-based bank for financial dealings with North Korea. The sharp and immediate reaction from the North Korean government indicated the importance it placed in Macau as a banking node in its networks.

China, in effect, serves as the primary gateway between North Korea and the rest of the world. Analysts in the West often perceive the Chinese government as the sole ally and primary protector of North Korea, inasmuch as it moves slowly on sanctions, stalls investigations into provocative behaviour such as the Cheonan incident, and generally runs interference for North Korea. Yet while the Chinese government continues to provide government aid to North Korea, increasingly, China’s interaction with the DPRK comes via private Chinese companies seeking to invest in North Korea and via media and consumer goods that seep across the border. Dandong, a Chinese city bordering North Korea along the Yalu River, is a good example. Since Dandong is where the China-North Korea rail line crosses the river between the two countries, much legitimate (and illicit) cross-border trade runs through the city. Dandong itself is a relatively economically prosperous city with (the last time I visited several years ago) a Kentucky Fried Chicken restaurant, and newly built apartment and office towers lining the boardwalk in front of the river. It provides North Koreans living in Sinuiju, the North Korean city facing it, a sense of the outside world, and the benefits that economic reforms bring. The contrast between Dandong and Sinuiju could not be starker.

quote Yet while the Chinese government continues to provide government aid to North Korea, increasingly, China’s interaction with the DPRK comes via private Chinese companies seeking to invest in North Korea and via media and consumer goods that seep across the border.


What North Korean legitimate and illicit state and non-state economic networks look like are a story of China-North Korea relations, and more generally, of China itself. China’s proximity to North Korea, and the government’s close (if sometimes tumultuous) relationship with the North Korean state are important. But also key are China’s role in the East Asian economy, and more generally, its (and its special administrative regions’) central role in the global economy. By studying China’s (often unintentional) role in North Korea’s efforts to survive economically, hopefully we will gain insight into the illicit political actors and their economic networks that are the flip side of East Asia’s economic dynamism.