Irons Off the Fire: China's Import Ban Seen Hindering North Korea

As China throws its weight behind new global economic sanctions against North Korea, a lively trade in coal--legal and through rampant smuggling--is likely to recede further. Shipments of seafood and iron ore will be curtailed for the first time.

Beijing's latest "total ban" on coal imports from North Korea cuts off a loophole that had survived an earlier round of sanctions in February, which had allowed for "livelihood" shipments, or exemptions for humanitarian purposes.

China is also targeting iron ore, of which imports from North Korea soared as coal fell, as well as seafood for which it was the primary customer.

The moves will make it harder for North Korea to acquire resources to build up its military capacity, said Zhao Tong, a fellow at the Carnegie-Tsinghua Center for Global Policy in Beijing.

"This is going to have significant impact on the functioning on North Korean industry, especially the defense industry," he said.

The limited coal ban imposed earlier this year surprised some foreign observers by its effectiveness. A famously porous border for smugglers between the two countries had stymied previous attempts to get China to effectively sanction Pyongyang's ambitions for nuclear power.

Since March, however, imports of anthracite--the coal used to power Chinese electric plants--have dropped to zero, China customs data show.

China's latest move comes as U.S. President Donald Trump signed an order Monday to probe China on alleged intellectual property theft, and amid accusations that Beijing isn't taking a strong enough stand against North Korea.

China's Foreign Ministry said it tightened the screws in response to new U.N. directives aimed at cutting off $1 billion in Pyongyang's foreign earnings, and not pressure from Mr. Trump.

Revenue from anthracite at one time provided nearly half of Pyongyang's foreign exchange. Two years ago some 80% of China's anthracite came from North Korea. Imports in 2016 totaled 22.4 million metric tons, giving North Korea $1.2 billion.

This year, China has imported just 2.67 million tons valued at $220 million.

North Korea exported $196 million worth of seafood and prepared fish in 2016, with 97% of that going to China, according to U.N. statistics.

The coal trade in particular shows how active China used to be in North Korea. Commerce was dominated by some 5,000 Chinese companies, some state-owned, trading with North Koreans legally or otherwise, analysts say.

The Chinese city of Dandong was a favored overland entrepôt; the Chinese ports of Rizhao and Dongjiang were established counterparts of Nampo and Songrim in North Korea. Chinese cellphone towers along the countries' 870-mile border extended into North Korea territory, helping to facilitate a lively market for contraband.

"It's difficult for [smuggled] iron ore or coal to go through normal customs checkpoints, so sometimes they do it by river boats," said Justin Hastings, an international-relations scholar at the University of Sydney who has researched the China-North Korea illicit trade. "Trucks can also go over the frozen river" along the border.

As Beijing turned up the heat, some North Korean smugglers took to meeting Chinese counterparts on the Yellow Sea to shift cargo, a method favored by trading firms based in the northeastern Chinese port of Dalian, Mr. Hastings said.

As coal shipments to China declined, imports of iron ore ticked up, rising 60.3% in the first half from a year earlier to 1.3 million tons, China data show.

Beijing's decision to include the steelmaking ingredient indicates a close monitoring of trading patterns, and a willingness to find new pressure points on Pyongyang.

"There have been reports of iron ore traders encouraged to import less from North Korea, even before the sanctions took place," said Tomas Gutierrez, analyst for Shanghai-based Kallanish Commodities. "As I understand, some companies were refused new permits to import from North Korea earlier in the year."

For North Koreans, the pain is likely to hit coal workers who were among its more highly paid laborers, analysts say. North Korean colliers earned about 500 yuan ($75) a month, compared with average salaries at other factories of about 280 yuan.

For the Chinese, the impact is mostly limited to corporate bottom lines. Russian coal carried by rail substitutes costs 50% more than the North Korean commodity; seaborne Australian coal costs 70% more.

"This won't have a lot of impact on the Chinese side, as there already hasn't been a lot of trade going on either way," said Chi Jingdong, deputy secretary-general of the China Iron and Steel Association.

Some analysts doubt if any of the global sanctions would achieve their desired result: to slow North Korea's missile development.

"The nuclear missile programs are the top priority, so when resources become fewer, they will just concentrate them on the nuclear missile programs," Mr. Zhao said.

Neither is it clear how long Beijing's freeze will last.

"Whenever China has wanted to make a point, China seems to hold up trade just enough for North Korea to feel the pain," Mr. Hastings said. "That doesn't mean it will last forever."

Jonathan Cheng in Seoul and

Kersten Zhang

in Beijing contributed to this article.

Write to Chuin-Wei Yap at chuin-wei.yap@wsj.com and Eva Dou at eva.dou@wsj.com

(END) Dow Jones Newswires

August 15, 2017 07:51 ET (11:51 GMT)