Posts Tagged ‘Sanctions’

China’s enforcement of sanctions on North Korea: a bit of perspective

Thursday, June 2nd, 2016

By Benjamin Katzeff Silberstein

To what extent is China enforcing the latest round of UNSC sanctions on North Korea? This question is as important and interesting as it is nebulously complicated and difficult to answer. For the fact is, like Curtis points out here, that lower coal imports by China from North Korea does not necessarily give evidence to sanctions enforcement. Some of the figures reported in the news concern the value of the imports, which fluctuates with world market prices.

Moreover, as the old saying goes, correlation does not imply causality. In other words, the mere fact that trade in coal and other goods is decreasing does not necessarily mean that it is going down because of sanctions alone. It is worth to remember that Chinese imports of North Korean coal has decreased in the past too, before the latest sanctions round, due to decreased domestic demand and other factors. A whole host of variables other than sanctions may well be at play too.

Looking back at some previous trade data gives some context to the latest reports of decreasing trade. Even though volumes may be down, to fully understand how this impacts the North Korean economy, dollar value terms may be more relevant.

To recap:

  • According to recent data, Chinese imports of North Korean coal have decreased by 20.5 year-on-year for April 2016 (in tonne numbers).
  • According to Yonhap figures, cited here, this translates into a drop from $116.6 a year ago, to $72.27 now. This represents a 37 percent drop.
  • In the pre-sanctions quarter of the year, North Korean exports to China increased by 12 percent.

To put this in perspective, consider the following changes in the past:

  • Between January and November 2014, North Korean exports to China dropped by 12.3 percent in dollar terms.
  • Between 2013 and 2015, the value of coal exports to China dropped by 24.6 percent.
  • Between January and February 2014, total trade between North Korea and China dropped by 46 percent.

The point of citing these numbers is not to show that sanctions are not being implemented by China. Rather, such flows tend to fluctuate quite heavily for other reasons as well, and it is too early to conclude that sanctions are the only reason behind the contraction. As a New York Times story from late March this year showed, Chinese border agents tend to be fairly lax in controlling goods crossing the border – NYT cited a figure of about five percent of all goods being inspected. In sum, it is too early to draw any major conclusions about Chinese sanctions enforcement, and only future data will be able to give a more conclusive picture.

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Nw York Times reports on sanctions enforcement, at Sino-DPRK border

Thursday, March 31st, 2016

By Benjamin Katzeff Silberstein

Just as before, China’s controls over goods flowing across the border with North Korea is spotty at best. According to a New York Times dispatch from the border, Chinese customs authorities only control a small percentage of the goods (particularly relevant parts in bold):

If recent trade here is any indication, that cooperation has been spotty at best.

Cross-border trade, legal and illegal, flows pretty much as usual, and seems to be largely unhindered by the new rules, traders and local officials said.

One of the toughest components, a requirement that countries inspect all cargo entering or leaving North Korea for banned goods, is not enforced here.

On many days, Mr. Qin’s secondhand taxis cross the bridge in a convoy of more than 100 vehicles, including trucks loaded with containers draped in shabby tarpaulins and secondhand minibuses for North Korea’s rickety transportation system. Few are ever inspected by the Chinese authorities.

China accounts for about 90 percent of North Korea’s trade. Half of that business is estimated to flow through Dandong, a boom-and-bust city whose fortunes are tied to trade with North Korea.

Virtually everything that keeps the North Korean economy afloat passes through here: Coal and iron ore come in, violating the sanctions, and crude oil flows out, exempted from them.

Smuggling is rampant. The export of North Korean rare earth minerals and gold, banned under the new rule, is one of the more lucrative revenue sources for the North Korean government, traders said. That business continues on privately owned 200-ton ships belonging to Chinese smugglers based here, they said.

The United Nations rules put the onus on customs inspectors here to judge which goods may help the nuclear program or the military, which are banned, and which are intended for civilians, which are allowed.

On a recent day, the customs checkpoint, a large outdoor parking area adjacent to the bridge, held a collection of China’s castoffs: cheap four-wheel-drive Haval passenger vehicles, discount medicines for hepatitis and tuberculosis, old solar panels to brighten dark houses.

But the customs office here lacks the staff to open all the containers, a local government official said. Like most people interviewed for this article, he spoke on condition of anonymity since there are risks to speaking candidly to foreign media about trade with North Korea.

At peak times, up to 200 trucks a day cross the Yalu River to Sinuiju, North Korea. Before departing, only about 5 percent of the containers they carry are inspected, the official said.

[…]

Virtually everything that keeps the North Korean economy afloat passes through here: Coal and iron ore come in, violating the sanctions, and crude oil flows out, exempted from them.

Smuggling is rampant. The export of North Korean rare earth minerals and gold, banned under the new rule, is one of the more lucrative revenue sources for the North Korean government, traders said. That business continues on privately owned 200-ton ships belonging to Chinese smugglers based here, they said.

The United Nations rules put the onus on customs inspectors here to judge which goods may help the nuclear program or the military, which are banned, and which are intended for civilians, which are allowed.

On a recent day, the customs checkpoint, a large outdoor parking area adjacent to the bridge, held a collection of China’s castoffs: cheap four-wheel-drive Haval passenger vehicles, discount medicines for hepatitis and tuberculosis, old solar panels to brighten dark houses.

But the customs office here lacks the staff to open all the containers, a local government official said. Like most people interviewed for this article, he spoke on condition of anonymity since there are risks to speaking candidly to foreign media about trade with North Korea.

At peak times, up to 200 trucks a day cross the Yalu River to Sinuiju, North Korea. Before departing, only about 5 percent of the containers they carry are inspected, the official said.

[…]

There is, however, evidence of some enforcement in one important area: North Korea’s sale of coal and iron ore, two of its most important exports.

Port authorities here have been fairly vigilant in enforcing the new ban on North Korea’s ragged fleet of more than two dozen cargo ships, two local officials said. The coal they carry earns North Korea as much as $1 billion a year, according to the United States Treasury.

But that ban has been circumvented by smuggling ships and by the transfer of 12 North Korean ships to Chinese ownership, allowing them to dock at Chinese and other ports, a longtime trader, Mr. Yu, said.

A few traders interviewed here said the new rules had crimped their business.

Mr. Zhang, a trader who does tens of millions of dollars a year in business with North Korea, said customs officials had just impounded a big secondhand excavator he had bought from a coal mine in Shanxi Province and sold to a North Korean coal mine for more than $60,000.

Customs inspectors asked how he knew the equipment would not be transferred to the North Korean military. “We didn’t know how to answer,” he said.

But traders and officials expect that after some initial minor squeezing, whatever enforcement there is will be relaxed. Liaoning Province, where Dandong is a prominent city, ranked at the bottom of China’s 31 provinces for economic growth last year, and there was political pressure not to weaken the economy further.

Full article here:

A Hole in North Korean Sanctions Big Enough for Coal, Oil and Used Pianos

Jane Perlez and Yufang Huang

New York Times

03/01/2016

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Chinese local governments formally notified of sanctions against North Korea

Monday, March 21st, 2016

By Benjamin Katzeff Silberstein

I’m not sure if this is anything out of the ordinary or if this is the formal routine every time sanctions have been passed. Nevertheless, it’s an interesting development. If sanctions against North Korea are ever to hit the economy where it hurts, Chinese local governments are perhaps the most important implementers since much (or most) of North Korea’s external trade occurs with them. Korea Herald:

China has notified its local governments on how to implement new U.N. sanctions on North Korea, including specific measures on imports from North Korea, a diplomatic source with knowledge of the matter said Monday.

Kim Hong-kyun, South Korea’s chief nuclear envoy, held talks with his Chinese counterpart, Wu Dawei, last Friday as the two nations vowed to fully implement the new U.N. sanctions against North Korea’s fourth nuclear test and rocket launch.

During the talks, Wu told Kim that China has been “in the process of implementing the new U.N. resolution on North Korea,” said the source, who attended the Friday meeting.

“The Chinese side also believes that strong sanctions are needed to show its sincerity on denuclearization,” the source said.

Earlier this month, the U.N. Security Council levied tougher sanctions against North Korea’s fourth nuclear test on Jan. 6 and the Feb. 7 launch of a long-range rocket, both of which violated previous U.N. resolutions.

The new U.N. sanctions require countries to limit or ban imports of North Korean coal, iron ore and other mineral resources if the proceeds are used for the North’s nuclear and missile programs.

One of the potential loopholes is a provision that allows North Korea to continue exports of coal and iron ore if such transactions are for “livelihood purposes.”

Full article here:
China notifies local gov’ts of new U.N. sanctions on N. Korea
Yonhap News/Korea Herald
2016-03-21

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The UNSC sanctions and the North Korean economy

Friday, March 11th, 2016

By Benjamin Katzeff Silberstein

In the past few days, Daily NK has carried a number of interesting reports on how the latest round of UNSC sanctions have impacted the domestic economy in North Korea. Below, I’ve gathered a compendium of sorts. I’ll continue updating it as more stories surface.

Only a short while after the sanctions were announced, trucks carrying mineral exports were blocked from entering China. Some businesspeople were apparently surprised at China’s relatively forceful implementation of the sanctions, given that little impact had been seen from past sanctions:

Chinese authorities began prohibiting mineral exports from North Korea on March 1st in a move not strictly related to the passing of UN Security Council Resolution 2270, which outlines sanctions against North Korea. North Korean authorities and foreign-earning currency enterprises tied to the military did not see this move coming and expressed embarrassment and shock.

In a telephone conversation with the Daily NK on March 4, a source from North Pyongan Province said, “Beginning on March 1, mineral exports such as coal and ore have not been allowed to pass through Chinese customs into China. Trucks loaded with mineral deposits have been idly waiting in front of Chinese customs near Dandong. The foreign trading companies are simply waiting for instructions from the higher authorities.”

Full story:
Trucks loaded with mineral exports blocked from entering China
Seol Song Ah
Daily NK
2016-03-07

A few days later, Daily NK reported that “panic” had begun to set in, not just among high-level businesspeople and traders involved in the mineral extraction industry, but also among market vendors who worry that they won’t be able to buy products for import from China:

“The news that the UN resolution containing sanctions against North Korea passed unanimously is spreading like wildfire through [domestic] cell phones. People in the North had little interest in sanctions in the past, but these days they are expressing concern that ‘this time things are going to be different,’” a source in South Pyongan Province reported to Daily NK on March 7.

A source in North Hamgyong Province corroborated this news, reporting the same developments on the ground in that region.

“Sinuiju is known as the gateway to China and the ultimate symbol of friendly relations between our two nations. That’s why news of its closure to mineral exports is causing dismay,” she explained, adding that a rumor has also taken off that international customs offices in other border towns such as North Hamgyong’s Rajin and Hoeryong will be shuttered.

Further anxiety is being stoked by the fact that trusted allies such as China and Russia are participating in the sanctions and the fact that residents are getting detailed information about the resolution’s specific clauses.

“People are further concerned because things have apparently changed significantly since China helped the country to overcome the difficulties during the ‘Arduous March,’ [famine] in the mid 1990s. People from all over the country are concerned that China might shut the border down totally. If that happens, it will become difficult for everyone to make a living,” the source indicated.

“Wholesalers and market vendors are feeling the most vulnerable to the UN sanctions. Their greatest fear is that they won’t be able to buy products. Merchants who have been selling Chinese products at cheap prices are expecting a cost increase and have momentarily discontinued sales.”

Full story:
Panic sets in as sanctions specifics circulate 
Daily NK
Choi Song Min
2016-03-08

Not just mineral exports to China have taken a hit. Food products specialties like hairy crab, frequently imported to cities like Yanji in China from North Korea’s northern fishing cities like Rajin, are now being sold at domestic markets instead:

“These days items that were previously hard to find because they were earmarked for export are suddenly emerging at the markets,” a source from North Hamgyong Province told Daily NK on Thursday. “The price haven’t gone down enough yet, so you don’t see too many people actually buying them. But you do see flocks of curious people coming out to the markets to see all the delicacies for sale.”

She added, “High-end marine goods like roe, sea urchin eggs, hairy crab, and jumbo shrimp and produce like pine nuts, bracken, and salted pine mushrooms were once considered to be strictly for export, but now they’re easy to find. The number of such products, referred to as ‘sent back goods,’ at Sunam Market and other markets around Chongjin is growing by the day.”

Additional sources in both North and South Hwanghae Provinces reported the same developments in those regions.

Despite the sanctions that have already kicked in, products from China are still flowing into North Korea. however, the goods sold in bulk to China–minerals like coal, marine products, etc.– have nowhere to go and are therefore making their way back into the country.

Full story:
Would-be food exports to China popping up in jangmadang
Choi Song Min
Daily NK
2016-03-11

Politically, too, the topic of sanctions has become highly sensitive. According to reports by Daily NK, surveillance authorities have increased their focus on certain groups that they deem as more likely than others to speak out about the added pressures from the sanctions:

The boost in surveillance is interpreted as a move by the regime to nip in the bud any rumblings of political unrest engendered by members of society more likely to speak out about the pressure squeezing North Korea. Those tracing the lines of the circumstances leading to this pressure, namely a volley of sanctions lobbed at North Korea by the international community in response to its nuclear test and rocket launch, are a threat to the regime’s authoritarian grip over the population.

A source with the Ministry of People’s Security [MPS, or North Korea’s equivalent of a police force] informed Daily NK on March 8 that internal orders came down at the beginning of March for the MPS to survey and track the recent movements of those anyone ascribed to the “wavering” cohort. Two separate sources in the same province verified this information, but Daily NK has not yet confirmed if the same orders are in effect in other provinces.

Full story:
MPS steps up surveillance to suppress potential ‘pot stirrers’
Kang Mi Jin
Daily NK
2016-03-11

(UPDATE 2016-02-18): a couple of days ago, Daily NK published another piece on this topic. They note that market prices have remained relatively stable, and that many people don’t seem to treat this sanctions round as anything out of the ordinary:

Market prices in North Korea have remained relatively stable despite stronger sanctions enforced by the international community, including China, as well as greater limitations on market operationsdue to nationwide preparation for Pyongyang’s May Party Congress.

Multiple Daily NK sources within the country have confirmed that rice prices in Pyongyang, South Pyongan Province’s Sinuiju, and Ryanggang Province’s Hyesan are trading at 5,100 KPW, 5,150 KPW, and 5,080 KPW per kilogram, respectively, similar to levels before sanctions were stepped up (5,100 KPW, 5,100 KPW, 5,260 KPW).

This is also the case on the foreign exchange front, with 1 USD trading for 8,150 KPW in Pyongyang, 8,200 KPW in Sinuiju, and 8,170 KPW in Hyesan, showing some signs of strengthening for the local currency from pre-sanction rates (Pyongyang 8,200 KPW, Sinuiju·Hyesan 8,290 KPW).

“There had been concern we would see fewer goods in the market because of UN sanctions, but in reality, there hasn’t been much difference,” a source from North Pyongan Province told Daily NK in a telephone conversation on Sunday. “The state is placing restrictions on opening hours for the market for the ‘70-day battle’ (mobilization for the Party Congress), but the markets have remained lively, and there’s not much change in terms of market prices.”

Further confirming trends previously reported by Daily NK last week, an additional source in North Hamgyong Province reported yesterday that some people had stocked up food worried about sanctions from the UN, but that this hasn’t led to a violent gyration in prices. “Actually, in some regions, we’re seeing prices of certain products drop,” he noted.

This price stability seen in the marketplace, in spite of the sanctions having kicked in earlier this month, can be attributed to the fact that most products are still trading as they would have save one of the North’s main export items: minerals.

The simple reality that people have experienced similar times before is also at play. “In the past, people who had stockpiled food during other sanctions discovered that after the political climate evened out a bit they were unable to get their money’s worth for everything they bought. This is why we’re seeing less of it,” a source from Ryanggang Province explained. “Initially there was a little bit of noise, but in general people are remaining calm.”

Full article:
Market prices so far showing resilience against sanctions
Daily NK
Kang Mi Jin
2016-03-14

Also, Marcus Noland recently launched a “Black Market Contest” at the Witness to Transformation blog, letting readers bet on what will happen with the unofficial exchange rate as a result of the sanctions:

The exchange rate issue has re-emerged with the imposition of sanctions. My colleague Steph Haggard leans toward the view that the imposition of a broader set of sanctions, particularly with respect to mining, together with enhanced Chinese enforcement will generate a balance of payments cum financial crisis with uncertain implications for political stability. I am more skeptical of both the additional coverage and the likely Chinese rigor in enforcement.

But this is an empirical issue. If the sanctions bite, then one would expect to see their effects manifested in the black market rate on the won. So we decided to offer up this conundrum to the wisdom of the crowd, or at least of our readership, in this Witness to Transformation Black Market Contest. Yes, you can ply your wits against North Korean loan sharks and black market traders. Or maybe the North Korean monetary authorities. Here’s how it works.

Steph thinks that within two months, evidence of the impact of sanctions should begin to emerge. So the object of the contest is to guess the black market won-dollar rate two months hence. Since the sanctions resolution passed 2 March, we will use the first DailyNK average rate applying to the post-2 May period as the reference. So you have the next month to analyze trade data, contact spies in Dandong, or call in favors in Switzerland to inform your estimate. Whoever guesses closest to the May black market rate wins. In the event of a tie, whoever submitted their entry first wins.

Please list your estimate in the comments section below. The entry period closes 15 April.

Full article:
Witness to Transformation Black Market Contest
Witness to Transformation blog
Marcus Noland
2016-03-16

(UPDATE 2016-05-02): DailyNK continues to cover domestic prices in the context of the sanctions. In late April, vegetable prices rose, but rice prices remain notably stabile:

Despite these high prices, movements on the rice and foreign currency front have remained relatively stable, leading people to believe the spike in vegetables will be short lived.

“Vegetables are not export items and therefore their prices are determined by domestic supply and demand,” the Pyongyang-based source noted. “However strong the sanctions may be, rice prices have nonetheless remained the same and, under these conditions, not many will choose to eat expensive cabbages over rice,” the source added, suggesting that prices are likely to return to normal as the markets readjust for supply and demand.

Full article here:
Vegetable prices spikes, rice remains stabile 
Daily NK
Kang Mi Jin
2016-04-28

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