When tanks rolled down Kim Il Sung Square in Pyongyang, the capital of North Korea on 10 October, the image given to the rest of the world was one of business as usual in the isolated country. However, away from the bombast and sabre-rattling, a change is simmering at the very heart of the North Korean state and an economy once driven by a tightly-controlled communist command economy, largely synonymous with rationing and material deprivation.

Though not officially acknowledged, a "grey economy" has evolved over the past two decades, a development that has accelerated under leader Kim Jong Un, experts say. The Pothonggang department store, opened by the late Kim Jong-il in December 2010, is an illustration of the marked changes taking place. The nondescript shop situated down a back road in the capital sells everything from flat screen TVs to sports goods and imported wine. Significantly, the goods are priced in US dollars, Chinese yuan and North Korean won - at a black market rate of 8,400 won to the dollar.

The North Korean government sets an official rate for won at 105 to the dollar, an eightieth of the black market rate. Journalists who have been invited to report on North Korea are prevented from filming inside the store or interviewing any of the shoppers by the minders who accompany them throughout their trip.

Andrei Lankov, a North Korea expert at Kookmin University in Seoul said that the government of Kim Jong Un, who became North Korea's leader after his father's death in December 2011, has essentially accepted the ubiquity of the black market rate and a widespread illicit economy.

"Kim Jong Un's policy is remarkably friendly towards the private businesses, because his father was uncertain. He oscillated from toleration of the private economy to occasional support of the private economy, and then back to attempts to eradicate the private economy. It was his father's policy but not his. Kim Jong Un's policy is different. It's a quite tacit approval and encouragement and support for private economic activities," he said.

While the countryside has failed to enjoy the same increase in living standards as the capital, in many ways it has driven the changes seen in Pyongyang.

Agricultural mismanagement, floods and the collapse of the Soviet Union led to famine in the mid-1990s. Faced with the choice of cracking down on something they were ideologically opposed to, or letting their people starve, the state for the most part turned a blind eye to the informal markets, North Korean experts observed. When the famine ended, many of the black markets remained.

Growing up in a rural area close to the Chinese border, Kim Danbee was one of those who witnessed the evolution of these markets. She started working as an assistant to a black market trader at the age of 13. Kim took to smuggling goods across the border from China, where the majority of the imported goods available in North Korea came from.

"The products I usually smuggled were the ones that everyone can use. For example, I wouldn't smuggle just one product. I would illegally import electronic goods like television sets, refrigerators, rice cookers. The rice cooker that 'speaks' (when the rice is cooked) was a really big hit in the North. I also smuggled cosmetics, face masks and clothes that women like, and even needles and hair extensions," she said from her base in South Korea, where she defected to in 2012.

While trade can account to a certain extent for the rise in disposable incomes, there has yet to be an adequate explanation for the pace at which the changes have taken place, said Simon Cockrell, a North Korea watcher who has visited the country more than 100 times in the last decade.

"Where the money came from I think that baffles economists, nobody really seems to know, I mean North Korea's under a lot of sanctions, their economic record is not particularly amazing, so how has this managed to fund the creation of a new class of people who have money to spend on some fairly frivolous things, this is a bit of a mystery to be honest, nobody has explained it adequately yet," he said.

At a speech following a military parade marking the 70th anniversary of the ruling Workers Party, Kim Jong Un promised to introduce "people-first" politics. It remains unclear, however, how committed he and his Workers Party - not to mention the powerful military - are to market-based reforms. However, North Korean experts say it's only a matter of time before the Kim regime formally adopts a market-based economy - as China did 35 years ago under Deng Xiaoping.

<sub>Additional reporting by Reuters.

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