Archive for the ‘Political economy’ Category

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.

Share

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

Share

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
Share

Chinese imports of North Korean coal down since February ban, data says

Tuesday, May 23rd, 2017

By Benjamin Katzeff Silberstein

Reuters reported today on the most recent figures on China-North Korean trade. They show that coal imports have declined, to the lowest level in three years, according to Reuters. It must be remembered that coal trade (in volume terms, not necessarily in USD-numbers) has climbed for several years in a row since 2010, so a relative decline does not mean catastrophically low levels. Also, of course, Chinese customs data should be taken with a huge grain of salt.

Reuters:

The world’s second-largest economy bought goods worth $99.3 million in April from North Korea, the lowest monthly tally since at least June 2014, according to Chinese customs data. Previous data was not available.

That compares with $114.6 million in March and $167.7 million a year earlier.

A fifth of the April total was iron ore imports, which hit 285,000 tonnes, their highest since August 2014. That was up 10 percent from a month earlier and 2-1/2 times higher than a year earlier.

[…]

Cho Bong-hyun, who heads research on North Korea’s economy at IBK Bank in Seoul, said China’s imports from North Korea were likely to continue to decline due to Pyongyang’s repeated missile tests and the suspension of coal shipments to China.

“This won’t be disastrous for North Korea, but it will obviously hurt North Korea because it tends to export goods to China worth around $3 billion per year,” he said.

The value of imports from North Korea has fallen month-on-month since December, the data showed.

CHINESE SALES DOWN AS WELL

China’s exports to North Korea eased to $288.2 million in April, down 12 percent from March. Exports for the first four months of the year were up 32 percent at $1 billion.

Diesel shipments to North Korea in April more than halved from March to 2,606 tonnes and gasoline sales dropped 6 percent to 13,496 tonnes. North Korea gets most of its oil needs from China.

Crude oil exports from China to North Korea have not been disclosed by customs for several years, but sources have put it at about 520,000 tonnes a year.

Cutting off oil to North Korea for an extended period would be a crippling measure that analysts have said they don’t expect China would take.

[…]

Data released later on Tuesday showed China did not take any North Korean coal in April for a second straight month, after Beijing’s ban of such imports following repeated missile tests by Pyongyang.

China imported 1.53 million tonnes of coal worth $72.3 million from North Korea in April 2016.

Full article:
China’s imports from North Korea sink as coal ban bites
Josephine Mason
Reuters
2017-03-23

Share

China’s iron ore imports from North Korea in April highest since 2014

Tuesday, May 23rd, 2017

Benjamin Katzeff Silberstein

Reports Reuters:

China’s imports of North Korean goods in April fell below $100 million to the lowest in nearly three years, data showed on Tuesday, after China stopped buying coal from the isolated country and as calls mount for further economic sanctions.

Neighboring China is North Korea’s biggest trade partner, and the data indicates that China’s halt of North Korean coal imports on Feb. 26 is having an impact and curbing Pyongyang’s ability to raise hard currency through exports.

The world’s second-largest economy bought goods worth $99.3 million in April from North Korea, the lowest monthly tally since at least June 2014, according to Chinese customs data. Previous data was not available.

That compares with $114.6 million in March and $167.7 million a year earlier.

A fifth of the April total was iron ore imports, which hit 285,000 tonnes, their highest since August 2014. That was up 10 percent from a month earlier and 2-1/2 times higher than a year earlier.

U.S. President Donald Trump has been urging China to put more pressure on North Korea to step back from its nuclear and missile programs, and lavished praise on President Xi Jinping last month for efforts to do so.

At a regular briefing on Tuesday, Chinese Foreign Ministry spokeswoman Hua Chunying said Beijing’s actions were not aimed at proving anything to anyone else.

“This is our international obligation as a responsible member of the international community and permanent member of the U.N. Security Council,” she said.

Cho Bong-hyun, who heads research on North Korea’s economy at IBK Bank in Seoul, said China’s imports from North Korea were likely to continue to decline due to Pyongyang’s repeated missile tests and the suspension of coal shipments to China.

“This won’t be disastrous for North Korea, but it will obviously hurt North Korea because it tends to export goods to China worth around $3 billion per year,” he said.

The value of imports from North Korea has fallen month-on-month since December, the data showed.

CHINESE SALES DOWN AS WELL

China’s exports to North Korea eased to $288.2 million in April, down 12 percent from March. Exports for the first four months of the year were up 32 percent at $1 billion.

Diesel shipments to North Korea in April more than halved from March to 2,606 tonnes and gasoline sales dropped 6 percent to 13,496 tonnes. North Korea gets most of its oil needs from China.

Crude oil exports from China to North Korea have not been disclosed by customs for several years, but sources have put it at about 520,000 tonnes a year.

Cutting off oil to North Korea for an extended period would be a crippling measure that analysts have said they don’t expect China would take.

Pyongyang does not publish economic data.

North Korea fired a ballistic missile into waters off its east coast on Sunday, the second test in a week in defiance of United Nations Security Council resolutions.

In a statement posted on Tuesday, Chinese Foreign Minister Wang Yi urged North Korea not to violate U.N. resolutions on its nuclear and missile programs.

Washington has weighed tougher economic sanctions on Pyongyang, including an oil embargo, a global ban on its airline, intercepting cargo ships and punishing Chinese banks that do business with Pyongyang.

Full article:
China’s imports from North Korea sink as coal ban bites
Josephine Mason
Reuters
2017-05-23

Share

Ten million live in food insecurity in North Korea, UN says. But what does that really mean?

Tuesday, May 16th, 2017

By Benjamin Katzeff Silberstein

A new report published by World Food Program and other UN institutions (Food Insecurity Information Network), detailing food insecurity in the world in 2016 as a whole, says the following about the situation in North Korea:

  • 4.4 million (or 17 percent of the North Korean population as a whole) is in “crisis, emergency and [or?] famine”.
  • 5.6 million (or 22 percent of the population) lives in a “stressed” situation when it comes to food.
  • This brings the entirety of the population living in food insecurity to ten million.

North Korea is the only country in all of East Asia with food insecurity, the report says.

It is unclear where the data comes from. According to the report, it could either have come from government sources in North Korean or from the World Food Program, but the report itself does not specify this.

A few things are worth noting. First and most importantly, particularly at a time when news reports abound about the rising middle classes and the new consumption habits of the wealthy, it is crucial to remember that a significant proportion of the North Korean population still live lives far away from the relative luxury of Pyongyang.

Second, though there is no reason whatsoever to doubt that a significant part of the North Korean population lives in severe hardship, harvests do not appear to be declining. On the contrary. According to the WFP’s 2017 needs assessment for North Korea,

“[w]hile official Government harvest data for 2016 has not yet been released, FAO estimates that rice production in 2016 increased by 23 per cent compared to the previous year when there was drought, but remains below the previous three-year average.”

Third, the World Food Program’s methodology for estimating these figures is rather unclear and problematic. For example, in the above-mentioned assessment of North Korean needs and priorities for 2017, released earlier this year, the WFP classifies all those depending on the Public Distribution System (PDS) as “suffering from food insecurity and undernutrition, as well as a lack of access to basic services.”

Presumably, this is derived from the fact that PDS distribution (of grains and staple foods, which is basically all it distributes) fluctuates through the year and is fairly unpredictable. But with the growing prevalence of the markets, it is unclear whether even those who the WFP claim “depend” on the PDS, really get the main portion of their food from the system. Over the past few years, public distribution of food has become an increasingly marginal (though certainly not unimportant) part of the food supply, and assuming that 18 million North Koreans experience food insecurity simply because they are beneficiaries of the public distribution system seems questionable at best. Obviously, the only way to understand food security overall would be to look at sources of food overall, not just one channel of supply.

Fourth, one overall problem with data on food security in North Korea remains the involvement of the North Korean government in the data collection. That is not to say that the North Korean government pushes the food production estimates upward to make itself look more successful. On the contrary, at times it probably exaggerates food needs in order to receive more outside assistance. Rather, the political nature of food, markets and the economic system makes it difficult to get trustworthy assessments of the food situation in the country. Only in one paragraph in its short version of North Korea’s needs estimates for 2017 does the World Food Program even allude to the markets:

In addition to the PDS, households are increasingly reliant on markets for their foods, except cereals. Farmers’ markets are distribution channels for a wide range of foods and basic necessities. In addition to swaps and bartering, markets involve large numbers of small transactions, often led by women.
Markets enable households to sell produce from their kitchen gardens; vegetables, maize and potatoes, as well as some small livestock.

Given the extent to which marketization has prevailed in North Korean society for over close to three decades, language like this seems to conflict with an overwhelming body of information about the centrality of the markets in the system today.

And, of course, there is the elephant in the room: North Korea’s economic system itself. As Amartya Sen famously pointed out, famine and food insecurity does not first and foremost stem from a lack of food overall, but from skewed entitlements. In other words, resources exist, but the problem is who gets them. In North Korea, the regime continues to refuse overarching and fundamental reforms of the economic system. As Fyodor Tertitskiy convincingly argued in a recent piece in NK News, the systemic changes in the North Korean economy of the past few years is most likely the work of bureaucrats within the state hierarchy, rather than a push by Kim Jong-un. In short, there are a lot of things the regime could change about the economy, to improve access to food and diminish food insecurity, but which it does not do.

This makes language like this, also from the WFP’s 2017 needs assessment, so problematic (my emphasis):

There are many complex, intertwined reasons for the high rates of undernutrition in DPRK, including challenges in producing sufficient food. The majority of the country is mountainous, only 17 per cent of land is good for cultivation.
Agriculture also remains dependent on traditional farming methods. Food production is hampered by a lack of agricultural inputs, such as quality seeds, proper fertilizer and equipment. In addition, changing weather patterns have left DPRK vulnerable to droughts and floods, which have affected agricultural production.

Mountains and bad weather are not factors unique to North Korea. Geography is not destiny, and there is no shortage in the world of countries that have overcome difficulties in their natural environment through good policy. One has to understand the difficult spot that the WFP and other UN institutions work in, given North Korea’s politically sensitive and tense context. But one can only hope that the WFP is clearer about pointing out systemic deficiencies in the North Korean economy when they talk to officials behind closed doors, than they are in public statements.

All this said, North Korea is an extremely difficult environment to navigate for international aid organizations. The women and men on the ground certainly do their best to accomplish good things, and make accurate measurements in a challenging environment. But it is important to keep these and other methodological issues in mind before drawing any major conclusions about North Korea’s food situation.

Share

Chinese imports of North Korean goods down by 35 pct in March 2017

Wednesday, April 26th, 2017

Benjamin Katzeff Silberstein

Yonhap reports a 35 percent drop in Chinese imports from North Korea in March this year, compared to February, citing decreased coal imports after the February ban as a reason:

Imports from North Korea declined to US$114.56 million last month from $176.7 million tallied the previous month, according to Chinese customs data.

In late February, China suspended North Korean coal imports through the end of the year in accordance with the U.N. Security Council resolution adopted in December to punish Pyongyang for its fifth nuclear test in September.

The resolution centers on putting a significant cap on North Korea’s exports of coal — the country’s single biggest export item and source of hard currency. The cap was set at whichever is lower between 7.5 million tons or $400 million.

North Korea heavily relies on coal exports to China for its foreign currency income. China imported $1.19 billion worth of coals from North Korea last year.

Full article:
China’s imports of N. Korean goods fall 35 pct in March
Yonhap News
2017-04-25

Share

Some coal transports to China continue, while some controls tighten, Daily NK says

Wednesday, March 1st, 2017

Benjamin Katzeff Silberstein

Daily NK reports that coal smuggling continues despite the Chinese import suspension. Presumably, the suspension would also imply tighter controls on smuggling operations, some of which likely goes on with a degree of knowledge on the side of the authorities:

Although China’s Ministry of Commerce previously announced the suspension of coal imports from North Korea until the end of 2017, coal trading has continued in Rizao Port, Shandong Province, where regulatory control is known to be relatively loose. However, as of February 23, the customs clearance process was reportedly also strengthened in this region, leading to speculation that the coal trade will likely be curtailed in Rizao as well.
“Even on February 20, the day after the announcement to suspend North Korean coal imports, a vessel loaded with North Korean coal was permitted to unload after passing quality inspection at Rizao Port. Although official coal imports from North Korea have all been stopped, coal shipments have been continually imported through Rizao Port while circumventing customs clearance,” a source close to North Korean affairs in China told Daily NK on February 23.
“The North Korean trading companies have already signed contracts for coal trading in the first half of 2017, so they have no choice but to continue shipping in order to receive foreign currency. But the regulations have been strengthened as of today, so all coal is supposedly banned from entering China,” the source added.
To date, North Korean coal has been primarily exported by ships traveling through Nampo Port to Rizao Port, or from Songrim Port in North Hwanghae Province to Dongjiang Port in Dandong or Dalian. The coal is then sold to regions in southern China after passing quality inspection.
“The Chinese companies are obliged to import North Korean coal to secure their sales volumes. The coal trade between China and North Korea is mostly between individual merchants, so they are continuing to engage in smuggling, ignoring diplomatic pressure and sanctions,” the source said.
“When sanctions were imposed in earnest in April last year, the North Korean trading companies overcame the restrictions by changing their trading ports.”
However, in Dongjiang and Dalian, which are close to the border areas and where international attention is concentrated, the regulations imposed by Chinese customs offices are known to be strict.
“Rizao Port is relatively looser with their regulations than Dongjiang Port and Dalian Port because it mostly handles freight. The traders have resorted to Rizao Port in the face of sanctions because they can trade coal without going through the customs clearance process,” a separate source in China with ties to the coal industry reported.
“Even if the UN Security Council and the Chinese authorities tighten regulations on the coal trade, it cannot last long. Coal trading agreements are made between trading companies solely based on profit, so they are bound to create an alternate route whenever sanctions are introduced.”
“The traders can falsify records for coal and document it as other goods, or can borrow vessels belonging to other countries. The UN sanctions are currently ineffective for the land border between China and North Korea, which stretches for over 1300 km, so it will be impossible to block all coal smuggling via sea, which covers a far larger area,” he concluded.

Full article:
North Korean coal smuggling continues despite China’s import ban
Seol Song Ah
Daily NK
2017-02-27

Share

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

Saturday, 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

Share

North Korean rice prices have dropped drastically one year after the sanctions. Why?

Wednesday, 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.

Share

An affiliate of 38 North