Recent Developments

China-DPRK Coal Trade

Increasing DPRK-PRC commercial activity is coming at a strategic time. Business opportunities in China are proliferating for all?including North Korean state trading companies. The U.S.’s sanctions-centered policy is evolving into one that, in practice, places the U.S. on the sidelines. China, on the other hand, sees itself as playing a critical stabilizing role. China is taking a more direct approach toward engaging the DPRK because it believes the U.S. and South Korea’s policies for maintaining stability in Northeast Asia are problematic. China will do what is necessary to keep the North Korean regime viable. The Chinese government implicitly attempted a new North Korea policy after witnessing the failure of the 1994 U.S.- North Korea Agreed Framework in 2002, the failure of South Korea’s sunshine policy in 2007, and the failure of the Six-Party Talks in 2009. China’s new policy after 2009 is dominated by China-North Korea trade relations. When the Six-Party Talks failed, the U.S., South Korea, and Japan decreased their attempts at engagement with the DPRK. The intensive lobbying

The Trade Spike

The Role of Coal for China

In 2013, North Korea eclipsed Vietnam to become the world’s top anthracite exporter. Total domestic anthracite production in Vietnam has not changed significantly. What has changed in both countries is the percentage of total anthracite production that is being exported. Since 2002, North Korea has exported an increasing percentage of its total production. Meanwhile since 2007, to meet increasing domestic demand as a result of recent power plant construction, Vietnam has been decreasing its anthracite exports and selling what it previously exported domestically. North Korea continues to be ranked third globally in total anthracite production.

In the investigation of what was accounting for the recent trade spike between the DPRK and China, coal immediately stood out. In a December 2013 Yonhap News report75 comparing the economies of North and South Korea?including trade volume, Gross National Income, kilometers of road, power generating capacity, and social overhead capital spending?South Korea soundly outperformed its northern neighbors, often hundreds of times over, in every category except one. North Korea significantly outperformed South Korea in coal production. This led us to ask why and how. We examined North Korea’s expanding coal trade with China and found that it is bringing large revenues and large opportunities to purchase goods? possibly including sanctioned ones?which are playing a substantial role in sustaining the North Korean regime.

Why Coal is Strategic

Keeping DPRK Stable

Coal is like oxygen to the North Korean regime. In other words, the coal industry as utilized by the Kim Jong-eun regime is the lifeblood that keeps the whole DPRK establishment afloat. The purpose of this section is to substantiate these statements by explaining how the DPRK regime utilizes the coal trade in four innovative ways, namely (1) stockpiling, (2) offshore accounts, (3) bartering, and (4) price manipulation.

Why and how did trade between China and North Korea increase after the U.N. passed several rounds of sanctions? It is well known that the 2009 nuclear test was offensive to China’s leaders. In his official state visit to the DPRK in October of 2009, Chinese Premier Wen Jiabao questioned the rule of law and lack of investor protection mechanisms surrounding Chinese investor difficulties in the largest copper mine in North Korea. Also in that same year, North Korea’s attempt at currency reform fell flat on its face.84 Why did the combination of international sanctions and the massive failure of a sweeping currency reform not lead to the collapse of North Korean power and economy, but to tremendous increases in exports to China? The beginning of an effective sanctions regime or nuclear negotiation should be based upon a better understanding of North Korea’s state capability and economic situation. Foreign aid might be an effective incentive to denuclearization only if the economy fueling the 1% regime elites in North Korea is weak. If the regime’s elite economy is strong, sanctions and aid strategies will likely fail. The following four sub-sections will show that in spite of international sanctions, the 1% in North Korea are thriving, allowing the regime to maintain a secure grip on political power.