China’s trade with North Korea increases slightly in January and February, despite partial border opening
On Sunday, China Customs Office reported a slight increase in officially documented exchanges with the Democratic People’s Republic of Korea (DPRK) in January and February 2022. Chinese exports of $57 and $59 million respectively compare to almost no trade in the same months of 2021. This has led to some exaggerated claims in the media about what is happening in China-DPRK trade these days. However, even with these increases, trade is still around 80% lower than it was before the pandemic closure of the North Korean border in 2020. Additionally, Chinese imports of North Korean goods – 18 million of dollars and 2 million dollars respectively – remain derisory.
The product composition of Chinese exports to North Korea appears to be in line with United Nations Security Council (UNSC) sanctions obligations, although there has been a long and widespread reports of “smuggling” activities that violate the sanctions. Official data indicates that exports are largely made up of consumer goods and industrial and agricultural inputs; nothing in the form of capital or investment goods, such as machinery and transport equipment, is included. One of the highest volumes of export goods is plastic sheeting, which is for agricultural use, and processed foods such as soybean oil, but no shipments were recorded for commodities such as rice and corn. Long-delayed pharmaceutical shipments also jumped to around $10 million for two months.
The composition of Chinese imports, i.e. North Korean exports, includes ores, mineral fuels and local cross-border electricity, all in very small quantities.
The low amount of trade in February is somewhat surprising, given at least a temporary opening of rail traffic across the border in late January. News reports indicate that the trains are passing from time to time the border but not on a regular schedule, and new coronavirus outbreaks in neighboring Jilin province could cause further disruptions.
Restrictions on North Korean exports of its big earners – coal, iron ore and various non-ferrous metal products – have likely led to a shortage of foreign exchange, limiting the country’s ability to import in larger volumes. However, these goods are all currently in high demand in China and come with very high prices, inviting smuggling or requiring a change in Chinese policy.
Interestingly, there have been few new unauthorized Chinese imports from North Korea. Prior to the closure of the northern border in January 2020, Pyongyang was making progress in exporting items such as beauty products, watches and assembled shoes to China, but these have largely stalled.
In terms of the food situation, North Korea had a decent harvest in 2021, despite flood damage and expected low yields. While grain stocks would be low, the lack of grain imports so far for 2022 could cause problems later in the year. The lack of imports of machinery and other capital goods also bodes ill for the general economy, which desperately needs investment to revitalize old factories and increase productivity. Investment is also discouraged as the regime appears to have used tough fiscal and monetary policies to protect the won from devaluation and has suppressed market activity. The won has fallen slightly with the reopening of the border, but remains much stronger against the US dollar and Chinese yuan than before the 2020 closures.
The impact of the Ukraine-Russia war and heavy global sanctions imposed on Russia, as well as rapidly deteriorating US-China relations, on the North Korean economy remains to be seen. With Russia joining North Korea in the small but growing cohort of harshly sanctioned nations, one would expect Moscow to break ranks with the rest of the UNSC and restore normal trade with Pyongyang. But it’s unclear how much would be won for either country. Russia, unlike China, has little need for North Korean products and it needs hard currency for its own exports, of which North Korea has little. Moreover, the many North Korean workers in eastern Russia could be losers in a generalized recession in Russia and lead to a reduction in foreign currency remittances from Russia to North Korea. One gain could be the sale of North Korean-produced ammunition and missiles to Russia if the war drags on, a bizarre reversal of Cold War-era trade. Beijing, on the other hand, if it can be persuaded by Moscow to join such a pact of sanctioned countries, has a much more complementary and mutually beneficial economic relationship with North Korea and could, either officially or through lack of enforcement, effectively rescind United Nations sanctions against its own. At least in February, however, that doesn’t seem to be happening.