DANDONG, China (Reuters) - Chinese textile firms are increasingly using North Korean factories to take advantage of cheaper labour across the border, traders and businesses in the border city of Dandong told Reuters.
The clothes made in North Korea are labelled "Made in China" and exported across the world, they said.
Using North Korea to produce cheap clothes for sale around the globe shows that for every door that is closed by ever-tightening U.N. sanctions another one may open. The UN sanctions, introduced to punish North Korea for its missile and nuclear programs, do not include any bans on textile exports.
"We take orders from all over the world," said one Korean-Chinese businessman in Dandong, the Chinese border city where the majority of North Korea trade passes through. Like many people Reuters interviewed for this story, he spoke on condition of anonymity because of the sensitivity of the issue.
Dozens of clothing agents operate in Dandong, acting as go-betweens for Chinese clothing suppliers and buyers from the United States, Europe, Japan, South Korea, Canada and Russia, the businessman said.
"We will ask the Chinese suppliers who work with us if they plan on being open with their client -- sometimes the final buyer won't realise their clothes are being made in North Korea. It's extremely sensitive," he said.
Textiles were North Korea's second-biggest export after coal and other minerals in 2016, totalling $752 million, according to data from the Korea Trade-Investment Promotion Agency (KOTRA). Total exports from North Korea in 2016 rose 4.6 percent to $2.82 billion (2.17 billion pounds).
The latest U.N. sanctions, agreed earlier this month, have completely banned coal exports now.
Its flourishing textiles industry shows how impoverished North Korea has adapted, with a limited embrace of market reforms, to sanctions since 2006 when it first tested a nuclear device. The industry also shows the extent to which North Korea relies on China as an economic lifeline, even as U.S. President Donald Trump piles pressure on Beijing to do more to rein in its neighbour's weapons programmes.
Chinese exports to North Korea rose almost 30 percent to $1.67 billion in the first half of the year, largely driven by textile materials and other traditional labour-intensive goods not included on the United Nations embargo list, Chinese customs spokesman Huang Songping told reporters.
Chinese suppliers send fabrics and other raw materials required for manufacturing clothing to North Korean factories across the border where garments are assembled and exported.
Australian sportswear brand Rip Curl publicly apologised last year when it was discovered that some of its ski gear, labelled "Made in China", had been made in one of North Korea’s garment factories. Rip Curl blamed a rogue supplier for outsourcing to "an unauthorised subcontractor".
But traders and agents in Dandong say it's a widespread practice.
Manufacturers can save up to 75 percent by making their clothes in North Korea, said a Chinese trader who has lived in Pyongyang.
Some of the North Korean factories are located in Siniuju city just across the border from Dandong. Other factories are located outside Pyongyang. Finished clothing is often directly shipped from North Korea to Chinese ports before being sent onto the rest of the world, the Chinese traders and businesses said.
North Korea has about 15 large garment exporting enterprises, each operating several factories spread around the country, and dozens of medium sized companies, according to GPI Consultancy of the Netherlands, which helps foreign companies do business in North Korea.
All factories in North Korea are state-owned. And the textile ones appear to be humming, traders and agents say.
"We've been trying to get some of our clothes made in North Korea but the factories are fully booked at the moment," said a Korean-Chinese businesswoman at a factory in Dalian, a Chinese port city two hours away from Dandong by train.
"North Korean workers can produce 30 percent more clothes each day than a Chinese worker," said the Korean-Chinese businessman.
"In North Korea, factory workers can't just go to the toilet whenever they feel like, otherwise they think it slows down the whole assembly line."
"They aren't like Chinese factory workers who just work for the money. North Koreans have a different attitude -- they believe they are working for their country, for their leader."
And they are paid wages significantly below many other Asian countries. North Korean workers at the now shuttered Kaesong industrial zone just across the border from South Korea received wages ranging from a minimum of around $75 a month to an average of around $160, compared to average factory wages of $450-$750 a month in China. Kaesong was run jointly with South Korea and the wage structure - much higher than in the rest of North Korea - was negotiated with Seoul.
Chinese clothing manufacturers have been increasingly using North Korean textile factories even as they relocate their own factories offshore, including to Bangladesh, Vietnam and Cambodia.
"Wages are too high in China now. It's no wonder so many orders are being sent to North Korea," said a Korean-Chinese businesswoman who works in the textiles industry in Dandong.
Chinese textile companies are also employing thousands of cheaper North Korean workers in China.
North Korea relies on overseas workers to earn hard currency, especially since U.N. sanctions have choked off some other sources of export earnings. Much of their wages are remitted back to the state and help fund Pyongyang's ambitious nuclear and missile programmes, the U.N. says.
The new U.N. sanctions imposed on North Korea this month ban countries from increasing the current numbers of North Korean labourers working abroad.
China does not disclose official figures for the number of North Koreans working in factories and restaurants in China, although numbers are down from a peak period two to three years ago, according to Cheng Xiaohe, a North Korea specialist at Beijing's Renmin University.
"It's a hassle to hire North Korean workers though," the Korean-Chinese businesswoman from Dalian said. "You need to have the right set-up. Their living space has to be completely closed off, you have to provide a classroom where they can take classes every day. They bring their own doctor, nurse, cook and teachers who teach them North Korean ideology every day."
One clothing factory that Reuters visited in Dandong employs 40 North Korean workers. They fill smaller orders for clients who are more stringent about their supply chains and expressly request no production inside North Korea.
North Korean factory workers in China earn about 2,000 yuan ($300.25), about half of the average for Chinese workers, the factory owner said.
They are allowed to keep around a third of their wages, with the rest going to their North Korean government handlers, he said. A typical shift at the factory runs from 7:30 a.m. to around 10 p.m.
The workers - all women dressed in pink and black uniforms - sat close together behind four rows of sewing machines, working on a consignment of dark-coloured winter jackets. The Chinese characters for "clean" and "tidy" were emblazoned in bold blue lettering above their heads and the main factory floor was silent but for the tapping and whirring of sewing machines.
Reporting by Sue-Lin Wong and Philip Wen; Additional reporting by Lusha Zhang and the Beijing newsroom; Editing by Bill Tarrant