Stolen shamelessly from the Wall Street Journal,  March 2, 2018:

China, Finally, Clamps Down on North Korea Trade—And the Impact Is Stinging

At a border crossing, garments and seafood aren’t coming out, and fewer Chinese goods are going in. Will it stop Kim Jong Un?

  • By 

Jeremy Page,

 

Andrew Jeong and

 

Ian Talley

Updated March 2, 2018 12:01 a.m. ET

HUNCHUN, China—Six months ago, the Quanhe checkpoint on China’s border with North Korea was a hive of activity and a vital conduit for trade helping Pyongyang finance its nuclear-weapons program.

Hundreds of vehicles queued up on the Chinese side each morning, bearing food, building materials and consumer goods bound for North Korea, to return later with North Korean exports of seafood, garments and coal.

Not any more. China, long criticized by the U.S. for supporting the North Korean regime, appears to be ramping up enforcement of international sanctions that Washington hopes will force Pyongyang to abandon its nuclear ambitions.

A week-long tour of China’s border regions found that sanctions are hitting local Chinese businesses hard and starting to bite inside North Korea, with factory closures, price rises and power shortages in some areas.

The impact within North Korea is likely to intensify later this year as it runs short of foreign currency, and could trigger an economic crisis by 2019, according to visitors, researchers and foreign officials monitoring the country.

On a recent morning, only a dozen people were waiting at the Quanhe checkpoint. One was a Chinese businessman going to check on equipment stuck in his garment factory in the North Korean port of Rason, which he closed in November after China began enforcing a newly adopted United Nations ban on North Korean exports of garments. His plant shutdown snuffed out the jobs of 200 North Korean workers, half of whose pay was going to the Pyongyang government.

On a visit to Rason a few days earlier, the businessman said, prices for goods such as Chinese-made batteries were up at least 50% from last year because recent sanctions prevent new supplies being imported, while prices for North Korean seafood had fallen by half since a U.N. ban on its export last year caused a glut on the local market.

“There were more than a dozen garment factories like ours in Rason, and thousands of people in the seafood industry,” he said. “Now, none of those people have jobs.”

Other Chinese traders concurred, some saying their crab and squid had been sitting in warehouses in Rason for months. In January, they said, Chinese border guards stopped letting traders bring into China even a small personal allowance of North Korean cigarettes.

The slowdown doesn’t capture the total picture of cross-border trade. Smuggling persists across the river that forms the border with China, and on a larger scale at sea: Since late January, Japanese military planes have spotted four instances of North Korean ships appearing to take on cargo from other vessels in international waters.

Still, the drop-off in official trade with China, which normally accounts for 90% of North Korea’s total, is a blow to Pyongyang. China’s imports from North Korea dropped by a third in 2017, the Chinese government says, and in December were down 82% from a year earlier. Chinese exports to North Korea declined year-on-year every month since July, with oil-product exports falling to almost zero since October.

Many foreign officials monitoring border activity are skeptical of China’s official data, noting that they don’t include the crude oil it continues to export, and that Beijing can relax enforcement at any point. But even they agree its trade with North Korea plummeted in recent months.

The train to Pyongyang now is often filled with North Korean workers heading home, as countries from Poland to the United Arab Emirates enforce sanctions that impose limits on U.N. members employing North Koreans. In Yanji, a Chinese city near the border, many local businesses are sending home North Korean workers when their visas expire, according to people familiar with the matter.

The result is another hit to North Korea’s sources of hard currency.

The question now is whether economic pain will persuade North Korean leader Kim Jong Un to change his nuclear strategy. Mr. Kim hinted in a New Year’s Day speech that sanctions were taking a toll, saying the economy had encountered “unprecedented impediments.” North Korean officials, however, have repeatedly said sanctions would never persuade the country to abandon its nuclear-weapons program.

Traffic is down on the Friendship Bridge between Dandong, China, and Sinuiju, North Korea. PHOTO: CHANDAN KHANNA/AGENCE FRANCE-PRESSE/GETTY IMAGES

More trucks were crossing the Friendship Bridge six months ago. PHOTO: HELENE FRANCHINEAU/ASSOCIATED PRESS

Realistically, trade sanctions won’t starve North Korea of the resources for a nuclear arsenal, say experts and U.S. officials. For one thing, the North Koreans continue to earn cash though means such as cybertheft and hidden arms sales to the Middle East and Africa.

The government is also likely to divert resources toward arms development and politically important areas such as Pyongyang, transferring any pain to the hinterlands. Even so, U.S. and allied officials hope Mr. Kim would be reluctant to sacrifice economic growth that he promised to deliver, alongside nuclear weapons, and that has enriched many in the North Korean elite over the last five years.

The window for talks is narrowing rapidly, with Trump administration officials saying North Korea may be just months away from an ability to launch a nuclear missile attack on the U.S. mainland, and warning that a pre-emptive U.S. military strike isn’t out of the question.

“Decision time is becoming ever closer in terms of how we respond to this,” U.S. Director of National Intelligence Dan Coats said at a Senate hearing two weeks ago.

While signaling openness to preliminary talks with Pyongyang, Washington is pursuing a strategy of maximum pressure through U.N. and unilateral sanctions to force Mr. Kim to suspend his bomb and missile tests and commit to denuclearization. A week ago, the Trump administration levied what it called the largest-ever package of North Korea sanctions, hitting scores of shipping and trading companies.

“Ultimately, we want to get to a place where [Mr. Kim] understands that his only choice is denuclearization and talks,” said Sigal Mandelker, the top U.S. sanctions envoy, in an interview in Beijing. “We don’t have many options, so if this doesn’t succeed, we’re going to be in a very different place.”

South Korean President Moon Jae-in said Sunday a senior North Korea representative he met with expressed willingness to talk with U.S. officials. The White House is skeptical, saying North Korea earlier canceled a planned meeting between Vice President Mike Pence and a sister of Mr. Kim on the sidelines of the Olympics.

Ms. Mandelker said China has taken unprecedented steps to enforce sanctions but urged it to go further, including expelling North Korean “financial facilitators.” She noted that Beijing recently blocked the U.N. from blacklisting sanctions-busting Chinese ships.

China’s foreign ministry said Beijing would continue enforcing U.N. sanctions even though that would mean losses for China, especially in border regions. North Korean officials couldn’t be reached for comment.

It isn’t easy to assess the effects in North Korea, whose government tightly restricts foreigners’ movements, forbids most citizens from contact with outsiders and doesn’t publish economic data.

Buying Less

China says its imports from North Korea dropped by 33% to $1.72 billion in 2017 and by 82% year-on-year in December.

China's trade with North Korea

China's trade with North Korea

China imports

China exports

$4 billion

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2

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2010

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Sources: U.N. Comtrade; China Customs Statistics

Traders, diplomats, satellite images and other sources report an economic impact but suggest it is cushioned by North Korean businesspeople and officials who stockpiled foreign goods and foreign currency during years when trade in coal and other commodities thrived.

North Korea currently isn’t facing any new food shortages, visitors to the isolated country say, and the elite can still access luxury goods. Well-dressed North Koreans were seen in the Chinese city of Dandong in January loading strawberries, grapes and kiwi fruit onto a train bound for the capital.

In the next few months, however, domestic food stocks and foreign currency reserves are expected to run down, say Western officials and foreign experts on North Korea, leaving the country with few ways to pay for imports of either essential goods or luxuries.

Prior to trade sanctions, Mr. Kim, party elites and North Korean businesspeople likely held at least $3 billion of hard currency, estimates Kim Byung-Yeon, an economics professor at Seoul National University. He calculates that Pyongyang has run a trade deficit of around $1.5 billion since March 2017 and that its gross domestic product shrank by around 2% last year. The professor said a more severe contraction seems inevitable this year if North Korea keeps burning through cash reserves.

Related Video

Inside North Korea With WSJ Reporters

Wall Street Journal reporters reflect on their September trip to Pyongyang, North Korea. Video/Photo: Paolo Bosonin/The Wall Street Journal

Without imported fuel, spare parts and raw materials needed for agricultural and industrial output, some aid workers and experts say food shortages could emerge. The United Nations Children’s Fund said in January sanctions had slowed aid deliveries, and 60,000 North Korean children face potential starvation. Two decades ago, a multiyear North Korean famine took up to two million lives.

North Korea “doesn’t let the outside world see, but things have started to become very difficult,” said Jin Qiangyi of Yanbian University in Yanji, China. “If we push it harder, we should consider that there might be a crisis, and a lot of people could starve.”

North Korea’s elite have grown accustomed to luxuries such as private cars, coffee bars, iPads and skiing, say visitors and defectors, and they are increasingly conscious of conditions in China and South Korea through smuggled copies of soap operas and other contraband.

A scientific sampling of North Korean opinion is out of the question, but a small survey secretly carried out, while limited in scope, may provide some insight. It found that of 50 respondents, 35 thought sanctions hurt North Korea’s economy and 43 expressed ambivalent or highly negative attitudes toward the country’s nuclear weapons. The North Korean respondents weren’t aware they were being polled in the survey, which was carried out over the summer and fall and commissioned by the Washington-based Center for Strategic and International Studies’ “Beyond Parallel” project.

Mr. Kim’s efforts to develop local industry, agriculture and markets may have made the economy more resistant to effects of sanctions. Domestic companies make a wider range of goods than before, and their managers are allowed to sell surplus production directly to customers.

“I’m not worried” about sanctions, said Ri Song Ho, the factory manager at a snack and soda producer called Golden Cup Trading Co. when Wall Street Journal reporters visited North Korea in September.

Widening Imbalance

North Korea’s trade deficit with China grew by 455% in 2017, depriving Pyongyang of foreign currency.

$2 billion

1

0

’04

’12

’06

’14

2010

’08

2000

’02

’16

Sources: U.N. Comtrade; China Customs Statistics

At a Pyongyang supermarket, workers said about half the products were domestically produced. The figure couldn’t be verified.

The catch for Mr. Kim is that much of the country’s recent economic progress has depended on revenue from exports, especially of coal.

North Korea’s economy grew 3.9% in 2016, according to South Korea’s Central Bank. U.N. figures show North Korea exported $2.9 billion of goods that year. North Korea also generated about $500 million from overseas workers and several hundred million dollars from arms sales and other activity that doesn’t show in U.N. figures, sanctions monitors estimate.

U.S. officials believe the trade sanctions have reduced North Korea’s exports of goods and labor by more than $2 billion.

The impact is clear in Chinese border cities such as Hunchun. It was once a hub for trade in North Korean seafood—prized for being relatively cheap and pollutant-free—and in garments sent to Rason for low-cost stitching by North Korean workers and then returned to China for export onward.

Standing among empty water tanks in his Hunchun seafood store, Liu Qinggang said he used to sell 25 tons a month of North Korean shrimp, crab and other shellfish, often shipping it as far afield as Shanghai. He has seen a 70% drop in sales since August and now stocks only a small amount of crabs imported from Russia at much higher prices.

He was in Rason around 6 p.m. one evening in August when he heard China was enforcing the seafood ban from midnight. He couldn’t get a shipment worth about $16,000 across the border in time.

“Now I can’t get my goods or my money out,” he said. “It’s had a big effect on North Koreans in the seafood business too: They’re really anxious because they’ve got stock they can’t sell.”

In nearby Yanji, China, North Koreans working as waitresses and singers in hotels said they were unsure when they were returning. Several North Korean restaurants recently closed.

In Dandong, China, the other major transit point on the border, daily cross-border traffic has fallen about 80%. A resident of Sinuiju, the North Korean city across the river, said gasoline prices had doubled, and electricity, which used to be supplied day and night, now is available only three to five hours a day.

That evening, almost no lights were visible in Sinuiju.

—Kersten Zhang, John Lyons, Jonathan Cheng and Alastair Gale contributed to this article.

Appeared in the March 2, 2018, print edition as 'North Korea Feels Sting of Sanctions.'