Chinese textile firms are increasingly using North Korean factories to take advantage of cheaper labor across the border, traders and businesses in the border city of Dandong told Reuters.
The clothes made in North Korea are labeled "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 realize 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, totaling $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.
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 neighbor'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.