China NK Economics

Yonhap: Chinese company stops buying North Korean coal

In what could be the latest financial hit to Pyongyang, Yonhap reports that an important Chinese customer has stopped buying coal from North Korea:

A Chinese company in the northeastern border city of Dandong has been ordered by China’s commerce ministry to halt its coal trade with North Korea starting next month, according to a state-run Chinese newspaper Wednesday.

Citing an unnamed Chinese businessman who operates a coal business with North Korea, the state-run Global Times newspaper said the order appeared to be linked to a measure against North Korea’s nuclear test last month.

“A relevant department of the Commerce Ministry and the General Administration of Customs issued the order and, as far as I understand, the Liaoning provincial government received the information,” the newspaper quoted the Chinese businessman as saying.

The report, however, did not identify both the businessman and the Chinese company. [Yonhap]

If the report is true — I emphasize, if — this could be a very big deal. By most accounts, coal is one of North Korea’s most important exports, if not the most important. Combined with the reported freezing of North Korean bank accounts, the loss of Kaesong revenue, and (of less significance) the drop-off in the restaurant business, multiple factions within the North Korean government may have just lost their main sources of revenue. The loss of that revenue could cause some factions to turn on each other for cash. It would also be a blow to Kim Jong-un, who needs cash to consolidate his power, and who faces a major party conference in May:

North Korea’s Kim Jong-un regime may face resistance from its military should the armed forces grow disgruntled at its bungled economic policy under the communist party-centric politics, a government-commissioned report showed Tuesday. [….]

[T]he military could call for reshaping the political order in its own favor if Kim fails to shore up the country’s debilitated economy and ensure sustainable military expenditures, the report pointed out.

“The stability of the Kim regime and party-military relations hinges on the country’s economic growth and continued military spending,” the report said.

“In the event of an economic failure, a shift in the Kim regime could emerge as the military — rather than regular North Koreans — would first demand a shift in party-military relations or call for a military-centric order.” [Yonhap]

See also the similar thoughts from Ken Gause, which I wrote about here.

The fact that China is taking credit for this arouses my suspicions, as did the reports that China ordered its banks to freeze North Korean bank accounts. Such an action would be welcome, of course, but seems questionable in light of China’s public and private opposition to financial pressure on North Korea. Further fueling those suspicions is the possibility of an alternative explanation, in section 104(a)(8) of the new sanctions law.

(a) Mandatory Designations.—Except as provided in section 208, the President shall designate under this subsection any person that the President determines—

[….]

(8) knowingly, directly or indirectly, sells, supplies, or transfers to or from the Government of North Korea or any person acting for or on behalf of that Government, a significant amount of precious metal, graphite, raw or semi-finished metals or aluminum, steel, coal, or software, for use by or in industrial processes directly related to weapons of mass destruction and delivery systems for such weapons, other proliferation activities, the Korean Workers’ Party, armed forces, internal security, or intelligence activities, or the operation and maintenance of political prison camps or forced labor camps, including outside of North Korea;

I take no credit for this paragraph, by the way. The first suggestion of this idea I saw came from none other than Senator Marco Rubio. And here are the consequences of that designation:

(c) Asset Blocking.—The President shall exercise all of the powers granted to the President under the International Emergency Economic Powers Act (50 U.S.C. 1701 et seq.) to the extent necessary to block and prohibit all transactions in property and interests in property of a designated person, the Government of North Korea, or the Workers’ Party of Korea, if such property and interests in property are in the United States, come within the United States, or are or come within the possession or control of a United States person.

We know for a fact that North Korea mines coal and other minerals in its prison camps — just look at the satellite imagery. It mined coal in Camp 22 and Camp 18, still mines it in Camp 14, and mines copper in Camp 12. It mines gold in Camp 15, and probably other camps. That means that Chinese mineral buyers have real exposure here. As with other recent reports, it bears close watching.