China, North Korea defies global sanctions on coal trade, again

China, North Korea are involved in illicit coal trade.

North Korea resumes illicit coal sales to China, despite global trade sanctions imposed on North Korea for developing nuclear weapons.

By Sunny Um, South Korea correspondent, Maritime Fairtrade

Until August, coal ports in North Korea have been left deserted with no sight of any vessels. However, at least four vessels came in and out of a coal port in Nampo in September. During the same month, another five vessels reportedly stopped by at Songnim Port, another coal port located near Nampo.

Some of the vessels loaded black-colored substances that seemed like coal in their cargo storage, according to Voice of America. While it is not confirmed whether these vessels are all Chinese-flagged, Radio Free Asia quoted an anonymous trade official saying that North Korean ships are offloading coal to Chinese ships in open waters of the West Sea, or the Yellow Sea. 

In a December 2020 webinar, former U.S. Deputy Special Representative for North Korea Alex Wong said that in 2020 alone, U.S. vessels observed 32 incidents of fuel smuggling ships in Chinese coastal waters, 555 separate incidents of ships carrying UN prohibited goods from North Korea to China, predominantly coal, and 155 incidents where Chinese-flagged coal barges sailed into North Korea and returned to Chinese ports with illicit cargo. 

Wong added that despite the U.S. alerting Chinese Navy and Coast Guard on 46 separate occasions that vessels engaged in smuggling had fled into Chinese coastal waters, the Chinese authorities did not appear to have done much to stem the tide.

Trade sanctions on North Korea

Since 2016, international sanctions prevented North Korea from exporting primary products, such as minerals. This means transporting and selling coal to other countries is legally prohibited.

The trade sanctions on mineral exports had made a huge impact on the economy, which has been “traditionally resource-dependent”, said Balazs Szalontai, associate professor of North Korean Studies at Korea University, in an interview with Maritime Fairtrade.

The sanctions also cut away revenues from China, North Korea’s biggest trading partner, as coal has been “one of its staple export goods to China, as early as the 1960s, and especially since 2006.”

“Imports from China were only marginally affected, but the bulk of export revenues was lost,” Prof. Szalontai said. “This is a serious problem in a country that already had a perennial trade deficit with China and nearly every other country.” 

Why North Korea defies sanctions

Prof. Szalontai said that North Korea sees the U.N. sanctions as “arbitrary” and “illegal” because building weapons to protect territory is one of a country’s sovereign rights — which explains why the country does not want to comply with the sanctions.

“On the contrary, the leadership seeks to demonstrate that the sanctions are unable to prevent the country from achieving its military objectives and that they merely hurt the civilian population,” he added.

Prof. Szalontai added that obtaining foreign currency to import foreign goods is also a motive of the illicit coal trades with China.

“For example, North Korea’s food exports can be increased only by further reduction of the already low domestic food consumption, while North Korean manufactured products cannot easily compete with other countries’ products — hence the special importance of coal and other minerals in gaining foreign currency or obtaining some import goods through barter trade,” Prof. Szalontai said.

Other motives for getting their hands on foreign currency include funding military activities like nuclear and conventional arms production, funding the lifestyles of the country’s elite, and propping up the economy.

Why China defies sanctions

China, on the other hand, could have resumed its coal import from North Korea due to energy shortage in its northeast region, since it is experiencing “unprecedented” power cuts at factories and housings. 

Goldman Sachs reported that recent power shortages on millions of homes can affect as much as 44 percent of China’s industry and cause a decline in the GDP growth in the later quarter of this year.

“China does need to import large quantities of coal, especially for industrial use,” Prof. Szalontai said. “Coal contributes to a larger share of China’s energy generation than oil and natural gas. Thus, North Korea’s cheap and good-quality anthracite coal is certainly useful in meeting the energy needs of neighboring Northeast China.”

Using North Korea as leverage against the U.S.

However, China’s illegal coal trade with North Korea can be also based on political intentions, as North Korea is not the only nearby country that exports coal.

“China can also easily import coal from Australia, Russia, and Mongolia,” Prof. Szalontai said. “It appears possible that the post-2018 cases of tacit Chinese non-compliance with the coal sanctions reflected not only local economic considerations but also certain political considerations.” 

One of such considerations could be that in 2018, even when North Korea adopted a more cooperative attitude towards denuclearization, the sanctions still remained.  Also, during this tense period of confrontation with the U.S., starting from the former Trump administration and into the current Biden administration, China might be thinking of using North Korea as leverage in negotiations.

“When North Korea adopted a less confrontational attitude in the nuclear dispute, China felt less need to squeeze the country hard (with trade sanctions), and Chinese leaders thought the U.S. should have rewarded North Korea for its flexibility by lifting at least some sanctions,” Prof. Szalontai said. 

Regime collapse not to China’s advantage

Moreover, China is importing coal from North Korea because it does not want the country to collapse due to economic failure.

“This is because the collapse will be both politically and economically disadvantageous to China,” Prof Szalontai said. 

“At the same time, China, as a permanent member of the Security Council of the U.N., does not want to openly violate the sanctions, and thus these (illicit) cases of ship-to-ship transfer are probably insufficient to fully compensate North Korea for the losses caused by the sanctions and the pandemic.”

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