North Korean energy trade with China

Nautilus Institute
Nathaniel Aden
August 2006

Paper here: Nautilus-Aden.pdf
web link here

Abstract:  China is North Korea’s largest international trading partner. Since 1995, energy and fuels have dominated bilateral trade between allies.  North Korea is a net importer of Chinese crude oil and oil products; however, it became a net exporter of electricity and coal to China in 2003.  Whereas North Korean coal and electricity exports are sold at sub-market “friendship prices,” Chinese coal and oil products have been sold to North Korea at premium prices.  Over the past ten years, North Korea’s imports have become increasingly energy-intensive, while exports have become more labor-intensive.  Chinese customs data suggest that Beijing is taking a pragmatic, market-oriented approach to trade with its reclusive neighbor, while the increasingly asymmetrical energy embodiment of bilateral trade may reflect dilapidation of North Korea’s non-military industries.

Bullet Points:
1.  In 2005, bilateral trade with the PRC accounted for 39% of North Korean international trade by value.

2. North Korean trade data are compiled by partner-country Customs Bureaus, the United Nations, and the Internaitonal Monetary fund (IMF).  China and South Korea provide the best “mirror” statistics.  Customs data do not include aid shipments, official development assistance, direct government transfers, foreign direct investment, services, remittances, barter trade, smuggling, illicit trade, trade in military equipment.

3.  The DPRK has spent an increasing amount of money on diminishing quantities of energy imports, particularly Chinese crude.  The decline of energy import volumes in the face of increasing overall imports and trade may reflect demand sensitivity to increased international market prices and/or North Korea’s lack of hard currency with which to purchase imported energy and fuels.

4. The DPRK has significant, ongoing refining capabilities.

5. Between 1985 and 2002, the DPRK domestic coal production has declined from 37.5 million tons to 21.9 million tons.  Nonetheless, North Korea increased its export quantity to 2% of total domestic production since 2002. 

6.  Starting in May 2005, North Korea has been an uninterrupted monthly electricity exporter.  Hydropower may account for much of the DPRKs surplus electric power.

7.  Energy prices reflect the pragmatic, market-oriented character of China’s economic relationship with North Korea.  North Korea may be providing China coal at subsidized prices, below those of China’s other trading partners.

8.  North Korea coal export prices show an awareness of market prices starting in 2002.

9.  The DPRK has consistently paid premium prices for Chinese oil product exports over the last ten years.

10. Aside from politically-determined prices, several conditions could explain this: 1.  Real factors (transport costs, demand, goegraphy) 2. Pyongyang’s insulation from market realities 3.  No DPRK leverage.

11. In 2005, North Korea imported $2omillion worht of trucks, $2 million worth of cars, $1 million of tractors.  The transport sector has not grown significantly since 1995.

12.  Shift of DPRK trade towards energy-intensive imports and labor-intensive exports suggests deterioration of non-military industry.


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