Archive for June, 2017

US sanctions of Chinese entities over transactions with North Korea

Friday, June 30th, 2017

Benjamin Katzeff Silberstein

Reuters reports:

The United States imposed sanctions on two Chinese citizens and a shipping company on Thursday for helping North Korea’s nuclear and missile programs and accused a Chinese bank of laundering money for Pyongyang.

U.S. Treasury Secretary Steve Mnuchin said the actions were designed to cut off funds that North Korea uses to build its weapons programs in defiance of U.N. Security Council and unilateral sanctions.

“We will follow the money and cut off the money,” he told a news conference.

A Treasury statement identified the bank as the Bank of Dandong and the firm as Dalian Global Unity Shipping Co Ltd. It identified the two individuals as Sun Wei and Li Hong Ri.

The sanctions imposed on the two Chinese citizens and the shipping company blacklists them from doing business with U.S.-tied companies and people.

Bank of Dandong did not respond immediately to a request for comment. A staff member at Dalian Global Unity would not comment on the sanctions and subsequent calls to the firm’s office in Dalian went unanswered.

Mnuchin said U.S. officials were continuing to look at other companies that may be helping North Korea and may roll out additional sanctions.

U.S. foreign policy experts say Chinese companies have long had a key role in financing Pyongyang. However, Mnuchin said the action was not being taken to send China a message. “This wasn’t aimed at China. We continue to work with them,” he said.

China did not respond favorably:

Asked about the U.S. sanctions on Friday, Chinese Foreign Ministry Spokesman Lu Kang said that China consistently opposes unilateral sanctions imposed outside the U.N. framework.

“We strongly urge the United States to immediately correct its relevant wrong moves to avoid affecting bilateral cooperation on the relevant issue,” he said, without elaborating.

China’s ambassador to the United States, Cui Tiankai, said China opposed the United States using domestic laws to impose “long-arm jurisdiction” on Chinese companies or individuals, the official Xinhua news agency reported on Friday.

“If a Chinese company or individual has acted in a way that violates United Nations Security Council resolutions, then China will investigate and handle the issue in accordance with Chinese law,” he told an event in Washington on Thursday evening.

Full article here:
U.S. targets Chinese bank, company, two individuals over North Korea
Joel Schectman and David Brunnstrom
Reuters
2017-06-30

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CNPC suspends fuel exports to North Korea

Wednesday, June 28th, 2017

Benjamin Katzeff Silberstein

In late June, Reuters reported that the Chinese state-owned enterprise, China National Petroleum Corporation, had suspended its exports of fuel to North Korea, ostensibly because of concerns that North Korean buyers would not be able to pay:

China National Petroleum Corp has suspended sales of fuel to North Korea over concerns the state-owned oil company won’t get paid, as pressure mounts on Pyongyang to rein in its nuclear and missile programmes, three sources told Reuters.

It’s unclear how long the suspension will last. A prolonged cut would threaten critical supplies of fuel and force North Korea to find alternatives to its main supplier of diesel and gasoline, as scrutiny of China’s close commercial ties with its increasingly isolated neighbour intensifies.

CNPC and the Ministry of Commerce did not respond to requests for comment. North Korea’s embassy in Beijing declined to comment.

Chinese foreign ministry spokesman Lu Kang, asked about the sale suspension and whether the Chinese government put pressure on CNPC to make this decision, said: “I do not understand this situation you are talking about” and declined to elaborate.

A source with direct knowledge of the matter said CNPC decided to put fuel sales on hold “over the last month or two” and described it as a “commercial decision”.

“It’s no longer worth the risks,” said the source. Chinese and international banks are stepping up compliance checks on companies dealing with countries on the U.S. sanctions list, such as North Korea, he said.

The North Korean agents who mostly buy the diesel and gasoline have been unable recently to pay for the supplies — CNPC normally requires upfront payments, the source said.

Reuters was unable to determine if the agents have started facing credit problems with Chinese and international banks worried about sanctions compliance issues.

Two other sources briefed about CNPC’s decision confirmed the suspension of diesel sales, but did not know directly about the gasoline move. The three people declined to be named due to the sensitivity of the matter and are not authorised to speak to the media.

PRICES SURGE IN NORTH

Last year, China shipped just over 96,000 tonnes of gasoline and almost 45,000 tonnes of diesel worth a combined $64 million to North Korea, where it is used across the economy from fishermen and farmers to truckers and the military.[O/CHINA4]

Most of that was sold by CNPC, which has grown over the past two decades to dominate China’s energy trade with Pyongyang.

Data for May released on Friday showed China supplied significantly lower volumes of diesel and gasoline compared with a month earlier, although monthly tonnages can vary widely. June data will be released in late July.

Fuel prices in North Korea, meanwhile, have sharply risen in recent months, suggesting a tightening in supply.

A Reuters analysis of data collected by Daily NK showed the price of gasoline sold by private dealers in Pyongyang and the northern border cities of Sinuiju and Hyesan had hit $1.46 per kg on June 21, up almost 50 percent from April 21. Until then, they had remained relatively stable since late last year.

Diesel prices averaged $1.20 per kg as of June 21, more than double over the same period, according to Daily NK, a website run by defectors who collect prices via phone calls with North Korean fuel traders.

Full article:
Exclusive: China’s CNPC suspends fuel sales to North Korea as risks mount – sources
Chen Aizhu
Reuters
2017-06-28

This does not seem to imply that the CNPC altogether halted crude oil deliveries to North Korea, only deliveries of fuel purchased on a commercial basis. And usually, the first follow-up question to ask in reaction to news of China halting deliveries of supplies X, or the imports of good Y, is “for how long”?

These deliveries may of course have happened on other contracts, but NK Pro reports continued North Korean oil tanker presence in Chinese oil terminals in both May and June.

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Chinese officials telling companies not to hire North Koreans

Sunday, June 18th, 2017

By Benjamin Katzeff Silberstein

The sourcing for this story looks to be some quite thin gruel, but given the current context, it makes sense. Nikkei Asian Review:

According to a source who is familiar with China-North Korea diplomacy, Beijing began instructing Chinese businesses to refrain from hiring North Korean nationals in March 2016 — the month that the U.N. toughened sanctions on the country in response to Pyongyang’s fourth nuclear test.

The instruction has so far been given informally, and in some cases, orally. No formal notices have been issued, the source said.

The companies receiving the instruction are mainly in Jilin and Liaoning provinces, on the border with North Korea. Beijing appears to be gradually including more companies in its whisper campaign, the source said.

The informal sanction appears to contradict the Chinese foreign ministry’s position that the country should not impose any form of sanction against North Korea if it is not based on a U.N. Security Council resolution. At the same time, it is a means by which Beijing can register its displeasure with Pyongyang’s missile and nuclear testing.

Full article:
China telling companies not to hire North Koreans
Oki Nagai
Nikkei Asian Review
2017-06-18

This seems to be the pattern when it comes to Chinese sanctions enforcement against North Korea. Orders and directives are given in a vague, non-specific fashion, making them relatively easy to rescind and relax at a later time. In other words, news like this should not necessarily be taken as evidence of some grand Chinese push against North Korea. The way that policy directives like these are delivered, is itself indicative of their temporary nature. This current period is not the first (and probably not the last) time that China has restricted trade with North Korea, but that itself is not evidence of any long-term “squeeze”. It is probably safe to assume that these directives will be reversed or relaxed soon enough.

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Lower Chinese imports of North Korean coal hitting coal mine workers in the north

Friday, June 16th, 2017

Benjamin Katzeff Silberstein

Reports Daily NK:

“It has been four months since coal exports to China were blocked, and North Korea is in a war-like crisis. Hundreds of coal mine workers belonging to dozens of trading companies have lost their jobs and been pushed into a life-threatening economic crisis,” a source in South Pyongan Province recently told Daily NK.
“Local residents who were once making a living by running food stalls near the coal mines or carrying coal have all lost their jobs. As a result, regional economic activity has plummeted.”
The local businesses that once relied on the coal export industry, including restaurants, car washes, and fuel vendors, have all met a similar fate and the circulation of money has stagnated in the general markets, causing disarray.
As a flow-on effect, the price of coal purchased for domestic consumption (primarily as a fuel source for home cooking and heating) has also dropped, inflicting further losses on coal exporting companies.
“Coal trading companies that used to allocate 10 percent of their coal export profits toward management have either suspended production or are only producing small quantities of coal. As such, the trading companies, markets, and residents alike have all been driven into a crisis,” a source in North Pyongan Province explained.
Although the local economy is in serious trouble, the North Korean authorities are not taking any tangible steps to address the issue. According to the source, the coal produced at the state-run coal mine in Sunchon City continues to be sent to the Pyongyang thermal power plant, irrespective of the suspension of coal exports.
The sources reported that residents are eagerly hoping that coal exports will resume, but the authorities feel as long as the state-run enterprises remain operational, there are no problems to address. This is causing complaints from the residents who instead see the nation’s resources poured into weapons development.
Full article:

North Korean coal business in jeopardy after four months of export suspension
Seol Song Ah
Daily NK
2017-06-16

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Market prices up in North Korea, following Chinese trade restrictions and seasonal variation

Tuesday, June 13th, 2017

By Benjamin Katzeff Silberstein

DailyNK reports that prices on some markets, for certain goods, have gone up recently. The causes are two-fold: increasingly difficult import conditions with heightened scrutiny and more items being restricted on the Chinese side, and seasonal variations. May and June are the height of the so-called lean season in North Korea, when food is in particularly short supply:

According to Daily NK’s sources, the rice price has risen from 4,800 KPW to 5,200 KPW per kilo at Hoeryong Market in North Hamgyong Province. Similarly, 25 kg bags of flour have risen by 10 RMB to 13,000 KPW, while sugar (50 kg) has jumped by 50 RMB.
May and June mark an annual period of agricultural hardship in North Korea. To make matters worse, the farming season began a month late this year, sending the price of vegetables including cabbage and radish skyrocketing. China’s recent efforts to restrict the quantity of imported items is further exacerbating the situation.
“Most of the products that are normally imported through Chinese customs offices, including food and industrial goods, have become much more expensive. The price surge must have been influenced by China’s stricter measures,” a source in North Hamgyong Province said.
Until last April, China’s customs offices generally waved through most items for export to North Korea including food, daily necessities, and clothes, with inspections little more than a formality. But in a sign of worsening relations between Beijing and Pyongyang, an increasing number of items are being placed on the restricted list.
“Due to China’s implementation of stricter customs procedures, the volume of products coming into North Korea has fallen by half compared to the previous month (April). The period of spring poverty is a hard time for North Korean people in both the cities and rural areas, and China’s actions are adding to their problems,” added a source in North Pyongan Province.

Given all the scrutiny and debates about whether or not China is implementing sanctions on North Korea, decreasing trade and upping the economic pressure et cetera, it is important to remember that we’re really not seeing any full-scale blocking off of trade between China and North Korea, even in goods that no country is supposed to be trading with North Korea following UN sanctions. Seasonal variations matter a great deal too. Moreover, though price changes like these certainly are troubling for North Korean consumers, they don’t appear, at least not for now, significant enough to have any major impact on the economy as a whole. Last but not least, Chinese implementation of sanctions measures, scrutiny, surveillance of goods and other similar measures in trade with North Korea has historically waxed and waned, and rarely remained consistent.

Full article:
Market prices leap as China implements strengthened customs procedures
Lee Sang Yong
Daily NK
2017-06-13

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New report on North Korea’s proliferation financing system

Monday, June 12th, 2017

By Benjamin Katzeff Silberstein

The non-profit C4ADS has released a new report (Risky Business) about the networks that North Korea uses to get around the international sanctions regime, and to continue trading and financing its weapons programs. Among the most interesting findings, in my opinions, is that of how interconnected and few the Chinese firms that trade with North Korean entities are:

North Korean overseas networks have been extremely adaptive to the combined pressures of international sanctions, in large part due to their ability to nest and disguise their illicit business within the licit trade. Like the cover material of iron ore over the RPG’s aboard the Jie Shun, or the dual role played by Dandong Hongxiang, the problem is particularly acute in the North Korean context where the state controls major aspects of the international trading economy. As early as 2006, former Undersecretary for Terrorism and Financial Intelligence Stuart Levey noted that, “the line between North Korea’s licit and illicit money is nearly invisible.” As North Korea has become ever more isolated internationally, it has had to confine nearly all of its trade to China. Data from 2016 shows that around 85% of total North Korean trade was conducted with China. According to Harvard-based North Korea specialist John Park, “what we are seeing now is the operation of sophisticated North Korean-run networks based in China.” In this relationship, North Korea has repeatedly taken advantage of the system of trade to conduct illicit activity nested within the licit system.

[…]

Although the regime has seen a boom in the sale of natural resources in recent years, the increased sale of fewer and fewer commodities to a single country has left its system of trade progressively more vulnerable. Analysis reveals that the scope of licit trade, in which North Korea nests its illicit networks, is surprisingly small. According to trade records, from 2013 to 2016, there were only 5,233 companies within China that either imported goods from or exported goods to North Korea. To put that number in perspective,as of 2016, 67,163 Chinese companies exported to South Korea. Additionally, these 5,233 businesses are not all unique actors: many of them have subsidiary relationships with companies within the dataset. For example, the network surrounding the DHID, the Liaoning Hongxiang Group, was made up of 18 companies in China alone, many of which appear within the dataset as unique entities.

The report mainly carries three findings:

In this report, we conduct a system-level examination of the North Korean overseas financing and procurement system. Our paper finds that this system is centralized, limited, and vulnerable, and that its disruption should greatly increase the pressure on the Kim regime to return to the negotiating table.

  • In Centralized, we examine key individuals and companies that connect networks from around the world. We discuss case studies of both regime “tactical controllers,” who conduct the operational tasks needed to move illicit goods, as well as “strategic chokepoints” through which these goods and their regime financing must flow.
  • In Limited, we explore trends within China-North Korea trade, the largest market exploited by North Korean overseas networks. Our data shows only 5,233 Chinese companies to have traded with North Korea from 2013 to 2016. Our analysis shows a small number of interconnected firms annually account for vast proportions of the trade, limiting the number of avenues in which North Korea can nest its illicit activity.
  • In Vulnerable, we analyze corporate structures and risk indicators that can be used to filter this data to identify potential dual-use transactions and networks of possible concern. Our priority lay in linking previously unidentified entities with known North Korean illicit actors to showcase the possibility of causing systemic disruption using targeted enforcement.

Full report:
Risky Business: A System-Level Analysis of the North Korean Proliferation Financing System
David Thompson
C4ADS
June 2017

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94,000 North Koreans working in China, Hong Kong news outlet says

Monday, June 12th, 2017

By Benjamin Katzeff Silberstein

Reports KBS:

Quoting data by the China National Tourism Administration, the broadcaster said that the number of North Korean workers in China increased from about 50-thousand in 2006, when the North conducted its first nuclear test, to 94-thousand-200 in 2015, earning the regime billions of yuan, or hundreds of billions of won, a year.

Full article:
Hong Kong Paper: 94,000 N. Koreans Working in China
Korean Broadcasting Service
2017-06-12

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New video from Chongjin, showing economic change

Monday, June 12th, 2017

By Benjamin Katzeff Silberstein

Unification Media Group (and Daily NK) continues their series of videos from North Korea highlighting some of the trends and features of the economy. The new video shows, among other things, how private companies are renting space from state enterprises, and notes that private alternatives to state-run businesses often function more smoothly:

Although North Korea’s private economy continues to develop, the public sector is showing signs of rapid decline. This is partly explained by the rise of North Korea’s newly-affluent middle class, who are referred to as “the donju.” Donju traders study the preferences of consumers in order to make profits, while state companies continue to operate according to bureaucratic management principles that have remained unchanged for years.
A video obtained exclusively by Daily NK and filmed inside North Korea’s Chongjin City shows evidence of these trends. In the video, a state-run bathhouse called “Sunam Undokwon” can be seen. In North Hamgyong Province, the state manages a variety of businesses, including barbershops, beauty salons, and restaurants. While the shops appear well kept on the exterior, the interiors reveal the true state of the businesses. The bathhouse, for example, does not have properly running water. Problems like this have caused a steep dropoff in clientele at state-run businesses.
In contrast, bathhouses operated by the donju have drawn a large customer following as they strive to cater to the needs of their clients. A privately-operated bathhouse and a soft drink vending stall can be seen in the video within a business center called Chongjin Shop. The Chongjin Shop is run by Kangsung Trading Company, which itself has an affiliation with the Ministry of the People’s Armed Forces. The bathhouse here has reliably running water and a steam room, and thus is the preferred bathhouse in the area.
“The water isn’t heated at the state-run bathhouse, so customers are forced to fill up small buckets and heat them up on small coal-fired stoves. The brown smoke and burning stench are so severe that customers tend to avoid it. But the privately-run bathhouses have robust fireplaces and the hot water always comes out strongly and without interruption,” an inside source from North Hamgyong Province told Daily NK.
Unlike public bathhouses, private shops offer ttaemiri, professionals who scrub down the bathers with abrasive cloths designed to exfoliate the skin. This service is creating a lot of buzz among customers, with factory workers coming to work as ttaemiri in the evenings. The popular service is drawing in donju and Workers’ Party cadres alike, as they flood into the bathhouses after eating dinner to relieve their stress.
Because the private bathhouses offer these additional services, the fees are higher than the public baths. Access to the open bath costs about 2,000 KPW, while access to the individual baths costs between 5,000-10,000 KPW. These prices are about 1,000-1,500 KPW higher than the state-run establishments. However, owing to the rise in demand for clean, professional bath services, the private shops are attracting more customers.
When asked to explain the popularity of these businesses, the source said, “Because Chongjin is host to a relatively large number of people who make money through the marketplace, private businesses like bathhouses are able to operate more or less according to market principles. Both cadres and donju find the private bathhouses to be convenient since, unlike public bathhouses, there is no need to show one’s ID card upon entrance.”
For these reasons, private businesses are gaining the edge over state-run businesses. There are some instances where publicly constructed buildings are being rented out entirely to donju entrepreneurs, indicative of the increasing dependence of the state economy on the private sector. On one side of the Chongjin Chemical Fiber Complex, a private business sign reads, “Resin-Aluminum Window [Frame] Production” – an example of a privately-run business that is renting out an area of a state-owned building.
The practice of renting out public buildings to private businesses has become particularly prominent since Kim Jong Un came to power. For the donju, such arrangements are more cost-effective than building a new facility from scratch. For the authorities, it offers a way to earn money from buildings that would otherwise be empty and unproductive.
The source continued to describe the arrangements, saying, “The donju pay fees to party cadres to rent out the building and carry out their business there. Renting out public buildings is officially illegal, but the party cadres are just as adept at earning money. So when donju come around looking to do business, the cadres just about throw themselves into the deal. The rental cost depends on a number of factors, like the currency that the payments will be made in (US dollar versus North Korean won) and the schedule of payments.”
Ever since the July 1st Economic Management Improvement Measures were introduced in 2002, the North Korean authorities have inconsistently permitted and then restricted the development of the private economy. Now, in an unexpected development, the public economy is beginning to trail behind the private economy. Marketization has expanded beyond the strict controls of the authorities, and the state economy is now striving to paradoxically maintain its vigor by extracting money from the private economy.
For this reason, business practices that are based on fundamental market principles are spreading with greater speed among the residents. It is likely seen as a potential threat to the stability of the Kim Jong Un regime. However, because the state economy has become dependent on the success of the private economy, an abrupt crackdown on the markets could produce self-inflicted wounds.
“Large construction projects and convenience services were once all run by the state, but now, businesses in these industries are succeeding based on market principles. If the authorities do not dramatically restructure the system sometime soon, it will be difficult to reverse the trend,” an inside source from North Hamgyong Province recently told Daily NK.
Both the donju’s accumulation of power and the resident’s tendency to prioritize money over party loyalty threaten to undermine the regime’s power base. It is therefore possible that the regime may punish a few donju or merchants as scapegoats in order to set an example.
As the private economy continues to flourish, it is possible to see residents using other methods to earn money. Some residents choose not to enter the official marketplace, and instead sell their products in back alleys adjacent to Sunam Market. One such merchant can be seen offering “Rock Portraits.” These are portraits of clients hand painted onto rocks.
“The government is struggling to keep up with the rapid development and diversification of the private economy. The Ministry of State Security and the Ministry of People’s Security usually label new economic activities and services as illegal. Eventually, as they start to receive bribes, they choose to look the other way and the practice becomes more mainstream,” the source said.
Illegal currency traders can also be seen offering services in front of a Chongjin foreign currency store. According to the source, these currency traders have rapidly increased in number over the last few years, and stroll about in front of the store and approach customers who may need to exchange currency. It’s a profitable industry that exists due to daily fluctuations in the currency rates.
“Even residents who don’t normally visit foreign currency exchanges are using the exchange services because they want to accumulate savings in a different currency (ie. not North Korean won). Residents, who fear another devastating currency redenomination like the one that occurred in 2009, are openly circulating foreign currency,” the source added.
Full article here:
Private businesses triumph over state-run
Unification Media Group
Daily NK
2017-06-12
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