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China Trade in North Korea Falls After December Rocket Test

Source: KCNA via KNS/AP Photo

North Korean leader Kim Jong Un rides on a boat, heading for the Wolnae Islet Defense Detachment, North Korea, near the western sea border with South Korea, in this March 11, 2013 photo released by the Korean Central News Agency (KCNA) and distributed March 12, 2013 by the Korea News Service. Close

North Korean leader Kim Jong Un rides on a boat, heading for the Wolnae Islet Defense... Read More

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Source: KCNA via KNS/AP Photo

North Korean leader Kim Jong Un rides on a boat, heading for the Wolnae Islet Defense Detachment, North Korea, near the western sea border with South Korea, in this March 11, 2013 photo released by the Korean Central News Agency (KCNA) and distributed March 12, 2013 by the Korea News Service.

China’s exports to North Korea fell in the first three months of this year, in what may be a signal to Kim Jong Un’s regime to change its behavior following a December rocket launch and subsequent nuclear test.

Shipments to North Korea fell 13.8 percent in the first quarter of the year to $720 million, China customs administration spokesman Zheng Yuesheng told reporters yesterday in Beijing. Imports from the North rose 2.5 percent to $590 million, Zheng said.

North Korea depends on China, its closest ally and biggest trading partner, for fuel oil and consumer goods. The trade decline is consistent with rising Chinese frustration over the North escalating tensions since the December missile test and a nuclear detonation in February, said Paul Haenle, who negotiated with North Korea as a U.S. official.

“North Korea’s circle of friends is quite small and China is the biggest friend that it has,” Haenle, director of the Carnegie-Tsinghua Center for Global Policy in Beijing, said in a telephone interview. “If it loses China over time it loses its ability to exist.”

The United Nations Security Council tightened sanctions against the North twice this year. Previous curbs in 2009 were followed by surging trade as Chinese companies bought North Korean minerals, and North Korea imported fuel and consumer goods. Two-way trade rose to $5.63 billion in 2012 from $2.68 billion in 2009, according to Chinese customs figures.

Hungry Neighbor

“China is a large and hungry neighbor, so why should China exclude itself from dealing with its neighbors for the benefit of others’ political and technical or strategic gain?” Roger Barrett, managing director at Korea Business Consultants, said by phone from Beijing. “China must look after itself.”

Zheng didn’t give specifics on trade, and those figures are set to be released later this month. From December through February, gasoline exports to North Korea totaled 12,101 tons, a 35 percent decline from the 18,723 tons shipped a year earlier, according to Chinese customs data.

Exports of crude oil to North Korea rose 3 percent to 102,002 tons, or $107.7 million, from December through February.

Haenle said that Chinese officials he has talked to are more frustrated with North Korea’s threats, and they believe that stronger U.S.-South Korean defense ties resulting from the tensions are not in China’s best interest.

Bustling Dandong

Dozens of trucks, some with North Korean license plates, lined up today near the customs building in the north eastern Chinese border town of Dandong. One truck crossing the Friendship Bridge which spans the two countries carried yellow excavators bearing the XCMG Construction Machinery (000425) Co. Ltd. logo.

Nearby at Dandong Tianfu Trade Co., which exports furniture and office supplies to North Korea, general manager Zhang Shuang said there hasn’t been much recent impact on trade with North Korea, even as tourism appears to have come to a halt.

“There’s been no big change, we’re used to” such tensions, she said in an interview today. “Since 2008 there’s been similar situations every year.”

Dandong Tianhuashan travel agency manager Zou Yuzhen, sitting in an empty office, said travel had stopped from yesterday but she hasn’t received any formal notice. China Foreign Ministry spokesman Hong Lei said yesterday that while some Chinese tour groups have canceled trips to North Korea, the situation on the border and diplomatic ties remain normal.

More Pressure

U.S. officials and lawmakers, including Republican Senator John McCain of Arizona, have called on China to put more pressure on North Korea to defuse the tension.

“Successive administrations have come to Washington and think they can solve the North Korea problem,” Andrew Scobell, a senior political scientist at the RAND Corporation, said in a conference call. “They conclude the key is China.”

Chinese President Xi Jinping, while not referencing North Korea directly, said April 7 that no country should be allowed to instigate regional chaos. China has advocated talks to ease tensions on the Korean peninsula.

China and North Korea are “maintaining normal state-to- state relations and trade is conducive to peace and stability in the region,” Foreign Ministry spokesman Hong said yesterday.

With the suspension of the Gaeseong industrial complex jointly run by North and South Korea, the North will only become increasingly reliant on China, said Lim Eul Chul, a North Korean studies professor at Kyungnam University in Seoul.

Gaeseong Suspension

North Korea withdrew more than 53,000 workers from the industrial complex this week, suspending operations at the special zone for the first time since it was opened in 2005.

Today it called the closing of the industrial park temporary, signaling a possible easing of tensions, after U.S. Defense Secretary Chuck Hagel yesterday urged the regime to tone down its “bellicose rhetoric.”

China’s commerce with North Korea is tiny compared to its commerce with South Korea. The $1.3 billion in two-way trade between China and North Korea in the first three months of 2013 compares to $63.3 billion between China and South Korea, according to Chinese customs figures.

North Korea’s gross domestic product is about one-fortieth that of South Korea’s. Its trade volume with China in the first quarter of this year represented about 0.1 percent of China’s total trade, Zheng said.

Commerce with China accounts for more than 70 percent of North Korea’s total trade, according to South Korean government estimates. The North doesn’t release official statistics.

“Chinese businesses for now seem to be controlling the speed and the volume at which they trade with the North,” Kyungnam University’s Lim said by phone. “Economic cooperation between North Korea and China will only get stronger because there’s no possibility that inter-Korean relations will dramatically improve under the current situation at Gaeseong.”

To contact Bloomberg News staff for this story: Michael Forsythe in Beijing at mforsythe@bloomberg.net; Sangwon Yoon in Seoul at syoon32@bloomberg.net

To contact the editor responsible for this story: Rosalind Mathieson at rmathieson3@bloomberg.net

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