Causes for skepticism on China’s coal suspension

February 21st, 2017

By Benjamin Katzeff Silberstein 

As Yonhap reports, Chinese coal imports from North Korea exceeded the ceiling mandated by UN sanctions by almost three times in December last year (2016):

The volume of North Korea’s coal exports reached nearly three times what the United Nations Security Council has allowed in its latest punitive resolution imposed on the communist country, an update on the U.N. website showed Tuesday.

The report indicates huge shipments of the energy resource were sent before China announced its ban last week. The data did not specify which country imported North Korean coal over the months, but put the number of reporting member states that bought North Korean coal at one, apparently meaning China.

The latest update of the U.N.’s 1718 Sanctions Committee, which oversees the implementation of UNSC sanctions on North Korea, showed North Korea exported a total of just over 2 million tons of coal in December, which is worth US$183.89 million.

In terms of value, the monthly export volume is well over the import ceiling of $53.5 million which the UNSC imposed in Resolution 2321 for the period of Nov. 30 to Dec. 31.

Denouncing North Korea’s fifth nuclear test in September last year, the UNSC approved Resolution 2321, putting import ceilings on North Korean coal, the biggest source of foreign currency earnings for the reclusive country, which is believed to buttress its development of nuclear and missile programs.

The annual import ceiling for 2017 was set at 7.5 million tons or $400.87 million in value.

The sanctions committee update also showed that the monthly export of North Korean coal for January stood at 1.44 million tons, which accounts for over 19 percent of the annual total.

The data also suggests that China stockpiled on North Korean coal before its announcement on Saturday to suspend imports through the end of the year. China said the decision was made in accordance with the latest UNSC resolution.

Asked to comment on the figures, South Korea’s foreign ministry spokesman Cho June-hyuck said “China is explaining that the North Korean coal import suspension adopted on Saturday is part of its implementation of a UNSC resolution.”

Full article:
U.N. report: N. Korea’s coal exports far exceed U.N. ceiling in Dec.
Yonhap News
2016-02-21

This, I would argue, is part of a longstanding pattern, one that gives cause for skepticism on China’s recently announced ban on coal imports from North Korea through the rest of 2017.

It is important to remember that China is already obligated to suspend most mineral imports from North Korea under the UN Security Council Resolution 2270. The resolution was adopted in early March last year, after the first of the two nuclear tests of 2016, and mandated the ban on member states on imports of North Korean minerals, including coal.

The resolution, however, contained a massive loophole and excluded imports whose proceeds went to humanitarian purposes. Needless to say, determining precisely what coal imports from North Korea would generate revenue going toward humanitarian purposes inside the country – and what exactly counts as “humanitarian” – is close to impossible. Though the sanctions under resolution 2270 were by far the strongest ever adopted by the council against North Korea, in retrospect, the humanitarian exemption appears to have been designed specifically to give China the wiggle room to choose its own trade policy vis-à-vis North Korea, regardless of what sanctions mandate. By continuing its imports of North Korean coal, China can perhaps credibly point to the humanitarian exemption clause, but at the very least, this behavior would seem to go counter to the spirit of the sanctions.

After the sanctions were adopted, a familiar pattern set in. In the first few weeks after the sanctions were adopted, tangible signs suggested that Chinese authorities were serious about implementing the sanctions framework. For example, coal shipments from North Korea were reported to be sitting in limbo out at sea, unable to land at their Chinese ports of destination. On April 7th 2016, the Chinese Ministry of Commerce formally announced an embargo against imports of coal, iron and iron ores from North Korea, “in order to carry out relevant resolutions of the UN Security Council.”

Still, during the summer, things looked relatively normal along the border. On a visit to the Sino-Korean border area in late June last year, I spoke to several people involved in the border trade who said that goods were flowing just as normal. Trade was bustling, and around a total of 200 trucks – the number commonly estimated for a regular day before the sanctions were put in place – either crossed the bridge connecting North Korea and China or waited in line to cross.

Some told me that Chinese imports of coal had gone down, but that this was more due to a decline in domestic demand for North Korean coal than the UN sanctions. Trade in coal between the two countries fluctuates for a whole host of reasons other than sanctions. A change in demand from Chinese firms has historically often been the most important explanation for changes in Chinese coal imports from North Korea. Domestic considerations probably loom large in the suspension announcement as well. Remember, for example, that Chinese authorities are already trying to cut down on domestic coal consumption and production to combat smog and pollution.

At first, the summer did see a significant drop in trade between North Korea and China. In July, trade as measured in terms of dollar value plunged by 27 percent for July 2016, compared with the same month in 2015. This came after a smaller decrease in April, the same month that Chinese authorities formally announced the embargo.

This trend, if should even be called it a trend, did not last long. In August, China bought around 2.5 million tonnes of coal from North Korea, the highest figure ever recorded for a single month. This more than made up for any previous declines. All in all, imports of North Korean coal rose the same year that sanctions were supposed to prohibit it almost completely.

In other words: after tightening the screws in the beginning, seemingly to make a point and a symbolic show of compliance, China’s sanctions regime appeared to let up almost completely, and things went back to normal.

Will this time be any different? It is possible, but we should not be surprised if news of continued coal shipments surface later in the year. Though trade in coal could reasonably be expected to decline for some time, as it has in the past, it would not be wholly surprising if it returned to normal levels after a short and symbolic embargo period.

(Part of this post is an excerpt from a piece I published in The Diplomat Magazine on February 20th.)

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China says it is suspending imports of North Korean coal for the rest of the year

February 18th, 2017

By Benjamin Katzeff Silberstein

In yet another so-called “strong signal”, China’s commerce ministry said on Saturday it won’t be importing any more coal from North Korea for the rest of the year. Remember, that coal that was already basically supposed to not be imported after last year’s sanctions (save for that generating revenue for humanitarian purposes). And the imports of which was already supposed to be capped at a low monetary limit. And so on and so forth.

Of course, as a usual caveat this time could be different but whether or not this decision will be enforced, and how strictly, remains to be seen, to put it mildly. China has other concerns in its relationship with the Korean peninsula and North Korea than signalling its commitment to the international community. Moreover, as I have written before, there are many factors that impact Chinese imports of North Korean coal than central government decisions. Domestic demand is one, and has probably played a greater role than diplomatic considerations over the past few years.

Other than the missile launch, one could suspect this is also a signal against the killing of Kim Jong-nam, who lived under Chinese protection.

Yonhap:

China’s commerce ministry said Saturday it will suspend the import of North Korean coal, apparently in response to the latest provocations made by Pyongyang.

Beijing’s Ministry of Commerce said the decision, which comes into effect on Sunday, is in line with the United Nation’s sanction against North Korea. The suspension will be valid through Dec. 31, the ministry added.

“As coal takes up a significant portion of Pyongyang’s trade with China, the decision is anticipated to have a significant impact on North Korea,” an expert on China said.

Coal is estimated to take up 40 percent of North Korea’s exports to China.

China had banned imports of coal from North Korea in April last year, but had been making exceptions for those intended for household use, which led to criticism over the regulation’s effectiveness.

North Korea fired a new intermediate-range ballistic missile (IRBM) called the Pukguksong-2 on Sunday from an air base in the country’s northwestern province toward waters off its east coast.

Full article:
China suspends imports of N.Korean coal
Yonhap News
2017-02-18

(Update 02-19-2017): an analysis from Choson Exchange:

When the UN Security Council imposed the cap on coal trade, China was left with the question of how such a cap could be implemented. Would there be an auction system for quotas? Is it able to track forward contracts or does it only know belatedly the level of coal trade after import figures come out? This problem came to the fore last year when the Chinese were unable to meet their commitments regarding the import cap as they wrestled with these problems.

China has generally chosen to ensure adequate flexibility in the wording of UNSC sanctions to give it wiggle room, rather than outright violating those rulings. Allowing a coal cap to pass at the UNSC indicates their willingness to adhere to the ruling. In imposing a ban for 2017, China probably took into account rapidly rising coal prices and a probable rush by companies to frontload sales ahead of the cap to predict that the coal cap would be breached far earlier in the year. Rather than risk a violation of the coal cap limit, China is proactively clamping down on trade.

Domestic concerns might also play a part. China is restricting domestic production of coal. Between domestic producers and North Korean ones, China obviously prefers the former.

Full article:
Why China imposed a ban on North Korean coal imports
Choson Exchange blog
2017-02-19

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North Korean issues more exit visas for people earning money in China

February 15th, 2017

By Benjamin Katzeff Silberstein

Reports Daily NK, with interesting details (3rd paragraph) on North Korean visa routines:

As the North Korean authorities prepare for the 75th anniversary of Kim Jong Il’s birthday (February 16), the regime has discretely issued passport visas to residents that are able to earn foreign currency in China, in order to fund the expansion of a greenhouse full of Kimjongilia (a flower named after Kim Jong Il).

“In South Pyongan Province, the regime secretly recruited individuals who can earn money for the greenhouse expansion project, regardless of whether they have connections in China. Although the process of visa issuance is usually complicated, the regime has handed out visas to anyone who is likely to earn money,” a source close to North Korean affairs in China told Daily NK on February 7.
“The provincial governments have instructed the foreign affairs unit of the State Security Department (SSD) to distribute allotments of passport visas to each region. Those recruited are waiting for their departure to China, assigned only with the duty to ‘secure funds,'” the source added.
Visa issuance in North Korea is subject to strict regulations for ordinary citizens. Applicants must have relatives in China and a document with a confirmation seal from Chinese immigration officials confirming that the relatives have extended an invitation. The law stipulates that ▲relatives should be closer than a first cousin once removed, ▲a visit cannot exceed either 40 days or two months and, ▲visa applications can only be submitted three years following the previous visit.
Normal applications are only open to those over 55 years of age who have a spouse and children. A confirmation process by the people’s unit, town office, state enterprise, the Party, the SSD, and the Ministry of People’s Security is then needed to show that there is no problem in regards to ideology. In particular, it is important that the applicant has no relatives who are defectors or who were sent to correction camps. If all of these requirements are met, then bribes of more than 500 USD are demanded from the foreign affairs division.
However, this rigorous procedure has been thoroughly disregarded as the provincial governments dispatch individuals to China to earn money. The Workers’ Party has issued instructions that each province should prepare the materials needed for the expansion of the Kimjongilia greenhouse.
Full article:
North Korea issues more visas ahead of Kim Jong Il’s birthday
Seol Song Ah
Daily NK
2017-02-15
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Sanctions hurting North Korean sports development, KCNA says

February 13th, 2017

Benjamin Katzeff Silberstein

Reports Yonhap:

North Korea on Monday denounced a set of United Nations Security Council (UNSC) sanctions against Pyongyang’s nuclear and missile tests as they are hampering the country’s development in the sports field.

Kang Ryong-gil, deputy secretary general of North Korea’s Olympic Committee, told foreign reporters in Pyongyang that the sanctions “hinder the aspiration of North Koreans to develop sports,” according to the Korean Central News Agency (KCNA).

He claimed that the UNSC sanctions resolution adopted in March last year even included recreational sports equipment on a list of banned luxury goods.

Kang’s remark came as the UNSC imposed tough sanctions against North Korea in March and November 2016 for its two nuclear tests and a long-range rocket launch. The resolutions focused on curbing the inflow of hard currency to the regime. It also came as North Korea plans to take part in the Asian Winter Games in Sapporo, Japan, which will be held from Feb. 19 to 26.

The sanctions led some countries to impose exports bans on North Korea over such sports equipment as skis, yachts and mountaineering boots, he said. The blockade of money transfers also prevents fund assistance which the International Olympic Committee (IOC) provides for sports development in member countries.

“The thing is that sports firearms can never be turned into rockets nor rockets be fired from them,” Kang said.

Original article:
N.K. claims U.N. sanctions hamper its sports development
Yonhap News
2017-02-13

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Sino-North Korean trade suffering from the Amnok river being frozen

February 12th, 2017

Benjamin Katzeff Silberstein

Reports Daily NK:

Smuggling and some trading activities between North Korea and China have been temporarily suspended due to the freezing of the Amnok (Yalu) River. Cross border exchange between the two countries often relies on the use of small boats to ferry goods between Sinuiju, North Pyongan Province, and Dandong, Liaoning Province.
“The Amnok River began to freeze due to plummeting temperatures from last November, so trade and smuggling activities have been suspended. Residents are waiting for the winter cold to pass at the end of February, and are repairing their ships,” a source in North Pyongan Province told Daily NK on February 5.
“The authorities have issued administrative instructions to the state fisheries including the Amnok shipping office to suspend all trade as well as fishing, and focus on repairs. But the fishermen themselves are more interested in smuggling because the state isn’t paying for the repairs.”
“Even the state fisheries offices are engaged in smuggling in order to survive and make loyalty contributions to the regime. Some managers of state-run fisheries have recently been approaching private smugglers, who reportedly earn around 200,000 RMB a year, for business propositions,” the source added.
According to the source, the state fisheries eschew official trade and resort to smuggling when official operations are suspended, because their primary concern is a loss of market competitiveness. Moreover, smuggling is critical in offsetting the costly customs tariffs incurred during official trade.
Operations are supported by border patrol officials who collude with the smugglers. Border guards, who are in charge of border security and preventing defections, are bribed heavily in return for allowing the smugglers to operate freely.
“The ones who are suffering the most from the recent freezing of the Amnok River are the officials manning the border posts. They are having a hard time because bribes have dwindled,” added a separate source in North Pyongan Province.
“Most smuggled goods are traded in Dandong and Dongjiang, and merchants there are also affected. There are literally hundreds of Chinese vessels anchored at Dongjiang Port in Dongjiang City waiting for smuggling to resume.”
Article source:
North Korea-China trade suspended due to frozen Amnok River
Seol Song Ah
Daily NK
2017-02-11
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North Korean rice prices have dropped drastically one year after the sanctions. Why?

February 8th, 2017

By: Benjamin Katzeff Silberstein

Prices for rice have fallen in North Korea. Daily NK, which tracks prices of rice and foreign currency in three North Korean cities, reported in the beginning of this week that rice prices have fallen thanks to continued development of the market economy and a steady flow of goods to and from China. This has happened despite expectations that the sanctions that the UN passed one year ago would cause inflation.

In theory, the sanctions were supposed to curb trade with China because they targeted North Korea’s crucial minerals trade. In practice, a steady stream of news from the border suggests that trade has continued, albeit with periodic squeezes, following a familiar pattern of China’s sanctions implementation waxing and waning.

This makes a lot of sense. A better functioning and more efficient market should logically lead to lower prices, as should increased trade with China, given the increase in supply. But neither of these two factors explains the timing. There are several other elements to take into consideration when analyzing price changes in North Korea. I am not making any certain claims here about the relatively drastic shift in prices, but rather, pointing to a few factors that may have contributed.

First, one must ask: how big is the drop? The short answer is: pretty big, but not unprecedented. The following graph shows the last and first price observations in the Daily NK market prices database for every year since 2010–2011. (I’ve excluded 2009–2010 because of the distortions that the 2009 currency reform creates in the data.) It shows that a similar price drop happened between 2011 and 2012 as well.

Graph 1: rice prices in North Korea, last and first year observations. Graph by NKeconwatch.com. Data from Daily NK.

This latest price point, however, is not a historic low-point. We’ll see if prices continue to drop over the weeks, but as of now, there are fairly near time points when prices have been lower, such as April 2014 (see graph further down).

Prices are seasonal to a degree. Though the market system and the public distribution system (PDS) obviously function under very different mechanisms, the following graph from the World Food Program’s 2013 food and crop assessment (the latest exhaustive one they published, to my knowledge) underscores the point that supply varies depending as the harvest draws farther and closer, and suggests that overall supply tends to be particularly good in December and January in other years as well:

Figure copied from World Food Program Food and Crop Assessment in the DPRK, November 2013, showing seasonal variations in government grain distribution.

Overall, the story under Kim Jong-un’s tenure seems to be one of price stability. Since around the spring of 2014, prices have moved in a fairly delineated fashion (as visible in the right half of this graph):

Rice prices, average of three cities, 2012–2017. Data from Daily NK, graph by NKEconwatch.com.

Second, though it would be intuitively easy to conclude that the drop in prices was caused by better functioning market mechanisms and agricultural management changes, this doesn’t seem to be the whole story. Again, such changes are crucial and may well have played a large role in the greater price stability of the past few years. But they would not explain this sudden shift.

Instead, the story seems to partially be the opposite, one of government action. A few days ago, Voice of America reported that PDS distributions in January of this year have, according to a World Food Program official, gone up by around ten percent as compared to the same period last year. Both in September and November, the North Korean government imported significantly larger quantities of rice than usual. These imports presumably go out through state channels rather than the private markets.

So while it’s impossible to isolate different effects from one another, it looks like the state can still have a significant impact on the food economy, even with the strong and continuously evolving market sector. This impact seems particularly likely this time around, given the sudden drop in prices. Only time will tell whether drop continues, or if prices continue to bounce within the limits of the past few years.

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Rice prices on steady decline

February 6th, 2017

According to the Daily NK:

Rice prices in North Korea’s markets are reportedly on a downward trend. It was originally expected that the sanctions implemented by the international community would lead to inflation due to trade reductions, but a year after the sanctions were implemented, prices have instead fallen due to the steady development of marketization and active trade with China.

According to recent findings by Daily NK, rice is trading at 4,000 KPW (per kg) in Pyongyang, 3970 KPW in Sinuiju, North Pyongan Province, and 4190 KPW in Hyesan, Ryanggang Province. This represents an approximate 1,000 KPW reduction from a year ago (Pyongyang 5019 KPW, Sinuiju 4970 KPW, Hyesan 4980 KPW).

A source in North Hamgyong Province told Daily NK on January 30, “I know that China donated a large amount of rice after the flood damage in September last year. I also heard that rice farming in North and South and Hwanghae Provinces and South Pyongan Province went well.”

The price of rice in Hoeryong City (North Hamgyong Province), which suffered severe flood damage last year, is at approximately 3,600 KPW. “Rice was about 5,000 KPW in January, but prices have fallen now, so women preparing for the New Year’s holiday were fairly pleased,” she said.

“Rice prices have also been slowly dropping since the end of last year at the Pyongyang markets and reached 4,000 KPW this year. Traders (who purchase products to sell elsewhere) lining up at the market entrance to buy rice coming in from the countryside are saying that the amount of rice circulating in the markets has definitely increased compared to January last year,” a source in South Pyongan Province said.

“Rice prices in most markets in Pyongyang are declining, with more than 70% of rice being imported from China. People usually mix Chinese rice with Korean rice because Chinese rice is too dry (as if it has been in storage for a year), unlike the sticky Korean type.”

VOA (Voice of America) reported on January 26 that North Korea’s total rice imports from China amounted to 4.2 million tons last year (2016), a 2.4-fold increase over the previous year (2015). This statistic was put forward by Kwon Tae Jin, Director of East Asia Research at the GS&J Institute, citing an analysis of data published by China’s General Administration of Customs.

Sources within North Korea have consistently pointed out that revitalized market activities have played a role. “In the past (Kim Jong Il’s time), rice prices increased whenever the regime cracked down on market activities, but people are now able to do business without many restrictions. In the current situation, it’s unlikely that the price will suddenly jump,” a source in Ryanggang Province said.

Market stability has been a hallmark of Kim Jong Un’s rule and is thought to be reducing backlash from the general public as their quality of life improves.

However, the ongoing decline in rice prices is likely to lead to livelihood instability for farmers. If rice prices fall while the prices of other commodities (Chinese imports) remain the same, issues are likely to arise.

“The prices of commodities other than rice have mostly increased. As a result, a growing number of farmers are worrying that they will be unable to survive on farming alone,'” the Ryanggang-based source said.

Read the full story here:
Rice prices on steady decline
Daily NK
Kang Mi Jin
2017-2-6

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DPRK possbly renames KWP financial agency to attend to wider economic affairs

February 6th, 2017

According to Yonhap:

North Korea renamed its financial planning department in an effort to empower the government ministry to newly take charge of practical economic affairs, a Pyongyang source has said.

“The Financial Planning Department under the Workers’ Party of Korea was renamed last year as the Department of Economy,” the source told Yonhap News Agency.

O Su-yong, a vice chairman of the ruling party’s Central Committee is heading the renamed ministry, the source said.

The rebranding broadened the department’s scope of duty from economic planning and budget setting to wider economic issues like railroad, construction and coal mining and processing, which were previously supervised by the cabinet, the source said.

Still, the supervision of the light industry and agricultural affairs is in the hands of the cabinet, the source noted. “In the seventh party congress last year, (North Korean leader) Kim Jong-un empowered the cabinet to take charge of economic affairs, but (he) again reversed course to choose a party-centered management style after the cabinet’s administrative orders failed to impact provincial economies,” according to the source.

Nam Sung-wook, professor at Korea University, said, “The move has something to do with maintaining consistency and continuity of economic policies.” He said the renaming may have been intended to expand economic supervision and shift the control of economy to the party.”

However South Korea’s Ministry of Unification, which handles inter-Korean affairs, said the renaming has not been confirmed and more information is needed to verify it.

In March 2010, the head of what is now the economy department, Pak Nam-gi, was executed for botching a reform program.

Read the full story here:
N. Korea renames financial ministry to attend to wider economic affairs
Yonhap
2017-2-6

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North Korea Sells South Korean Cookware Seized at Kaesong

February 6th, 2017

Benjamin Katzeff Silberstein

Reports Radio Free Asia:

South Korean cookware seized illegally by North Korean authorities after the Kaesong joint industrial park was closed last year are being found for sale in large quantities in Chinese cities near the North Korean border, sources say.

Formerly viewed as a symbol of cooperation between the two halves of the divided Korean peninsula, Kaesong was closed in February 2016 after North Korea ordered all South Koreans out of the complex, seized South Korean assets there, and declared the area under military control.

The move came a day after South Korea announced it was pulling out of Kaesong in retaliation for North Korean nuclear and long-range missile tests earlier in the year.

Now, electric rice cookers produced by South Korean firms in Kaesong are turning up for sale across northeastern China, a source in Kaifeng, in central China’s Henan province, told RFA’s Korean Service.

“North Korea began to sell South Korean products left behind in Kaesong starting in mid-December,” said the source, familiar with trade in the northeast and speaking on condition of anonymity.

“Their exact number is unclear, but it’s known to be in the hundreds.”

Electric cookers bearing the Kaesong markings “Made in Korea” are among the most popular items offered for sale in Korean stores located in cities in China’s northeast, sources said.

“Those buying the cookers are mainly South Korean businessmen.  Then resell them to Korean merchandise stores located in Shenyang, Yanji, and other places,” RFA’s source in Kaifeng said.

‘A complicated problem’

Speaking separately, the operator of a shop in China near the border with North Korea told RFA that he was approached in early December by four North Koreans he had never seen before.

“They asked if I would be interested in buying electric cookers made in Kaesong for a low price,” the source said, also speaking on condition he not be named.

“They said there were about 6,000 of these that they could sell.”

“At first, I thought that I could make a lot of profit by selling them, but then I refused the offer because I thought this could become a complicated problem for me later on,” he said.

While the same rice cookers are also made in Qingdao, in China, and labeled “Made in China,” those made in Kaesong are more popular with consumers because of their “Made in Korea” markings, he added.

 

Full article:
North Korea Sells South Korean Cookware Seized at Kaesong
Reported by Joonho Kim for RFA’s Korean Service. Translated by Soo Min Jo. Written in English by Richard Finney.
2017-02-06

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Private ownership of cars in North Korea

January 31st, 2017

By Benjamin Katzeff Silberstein

Yonhap reports (citing Joongang Ilbo) that since last year, private North Korean citizens are able to register ownership of cars formally and legally. The headline is slightly misleading – visitors and pictures from Pyongyang and other large cities have long since showed a vast increase of cars in the country, so their existence there is itself nothing new. However, if a change has occurred in ownership structures to make an already prevalent practice formally legal, it follows along with a trend over the past few years where practices already taking place are further incorporated into a formal legal framework:

Under civil law, North Koreans are allowed to possess cars and bequeath or inherit them, but in reality, people register cars under the name of organizations, not under the name of individuals.

Local newspaper JoongAng Ilbo reported that ordinary North Koreans have been permitted to register cars in their names since late last year, a move that heralds the recognition of private ownership.

The Ministry of Unification, which handles inter-Korean affairs, said more North Koreans are moving to own vehicles for personal use.

Full article:
N. Koreans showing inclination to possess cars: unification ministry
Yonhap News
2017-01-31

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