The steady flow of Chinese goods may be a clue to why economic sanctions have had little effect on North Korea. While the sanctions may cut North Korea’s export income, it can still procure goods to keep its urban elites happy with a little help from Beijing. And over all, since Kim Jong-un took power five years ago, North Korea’s underdeveloped economy has shown signs of faster growth.

Chinese officials have insisted they are obligated only to stop trade in certain restricted items. Those include Chinese exports of nuclear equipment and, under new international sanctions, imports of North Korean iron ore and seafood.

“As neighbors, China and North Korea maintain normal trade,” said Huang Songping, the spokesman of China’s customs administration, at a briefing in July.

China’s Trade With North Korea

China has gone along with United Nations sanctions by importing less from North Korea, but that has not had the intended effect of cutting North Korea’s ability to buy goods. China has increased its exports to North Korea instead, apparently selling on credit.


American officials have long focused on North Korea’s finances as a major vulnerability. More than a decade ago, they cut access to the United States financial system for a bank in the Chinese territory of Macau that they accused of helping Pyongyang. Last year the United States took further steps to cut off North Korea’s access to the global financial system.

Despite North Korea’s estrangement from most of the rest of the world, it still needs foreign currencies to get by. North Korea has a currency (called the won, like South Korea’s), but the money is worthless outside its borders.

Even here in Dandong, within sight of North Korea, eight merchants said in separate interviews that they do not accept the North Korea currency. Foreign exchange windows at local banks refuse to handle it.

That has left North Korea heavily dependent on its trade with China.

For years, Chinese purchases of coal and other goods gave North Korea a steady source of money.

That source no longer looks so steady. North Korea bought $2 worth of goods from China in July for each $1 of sales to China, as China has essentially halted purchases of North Korean coal since mid-February. For the first seven months of the year, North Korea ran a trade deficit with China of nearly $1 billion, almost four times the amount of a year ago.

North Korea may need to buy even more from China in the months ahead amid a drought. On the Chinese side of the border, hundreds of miles of cornfields were visibly more than a foot shorter and less developed than they should be.

Some in Congress have begun talking about legislation that would target leading Chinese banks’ use of dollar-based payments systems as a way to hit North Korean trade. But financial specialists say they worry about unforeseen payment difficulties, which were a big worry during the global financial crisis in 2008.

“What the legislators do not know, and it’s a little scary, is what these restrictions would mean for China,” said Elizabeth Rosenberg, a former North Korea specialist at the United States Treasury who is now at the Center for a New American Security, a Washington research group.

To avoid that, Chinese banks could simply lend extra money on easy terms to state-owned Chinese enterprises, which in turn could keep selling goods to North Korea without demanding payment.

Photo

North Korean currency at a Chinese vendor’s stall in Dandong.

Credit
Greg Baker/Agence France-Presse — Getty Images

Continuing trade on credit may explain why North Korea shows few indications of a money pinch, such as surging prices for rice and other essentials.

“Frankly, you just haven’t seen it,” said Kent Boydston, an analyst at the Peterson Institute for International Economics in Washington.

North Korea has other ways to get cash, though estimating those amounts is tricky work.

It could attract foreign investment toward developing natural resources. But China shows few signs of making such big investments, and it supported United Nations sanctions in early August that would halt purchases of iron ore, coal and other assets.

North Korea can also tap what is euphemistically known among economists as “errors and omissions,” which in North Korea’s case has included narcotics trafficking, counterfeiting, gunrunning and the sale of advanced weapons technology to other rogue regimes. Experts says North Korea is also likely behind a number of high-profile computer hacking attacks that sought large sums of money.

North Korea gets money from its citizens overseas, who must remit most of their paychecks to the government. But with the United Nations tightening that source as well, there has been little sign of a huge recent increase in these revenues, said Melanie Hart, a senior fellow at the Center for American Progress, a Washington research group.

Shoppers and shopkeepers in Dandong — who spoke on condition of anonymity for fear of Chinese government reprisals — said North Korean workers were a common sight, though there has been little sign of an influx. One said many lounge singers and bar hostesses here are young women from North Korea. Their monthly pay is about 3,000 renminbi, or $460, but they keep only about a quarter of that.

China’s decision early last month to ban imports of North Korean seafood seems to be having an effect. At an open-air seafood market in Dandong, only one vendor in a row of four said she had North Korean merchandise: a handful of live crabs. Other vendors complained they had to buy more-expensive Chinese shellfish for sale instead.

For now, the trucks continue to cross the World War II-era steel frame bridge here at night to North Korea.

A nearby resident, looking at the trucks and the occasional young men who run up to drivers with packages to deliver to friends and family in North Korea, said the scene had not changed for a long time.

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