Sanctions Watch I



In coming months, we are going to periodically review simple indicators that provide insight into the China-DPRK relationship and sanctions enforcement in particular (for a parallel exercise, we noted as this was going to press that Bill Brown has done something quite similar at the KEI blog; Brown’s post is worth a close read as it also provide some sectoral detail).

There does seem to be a long-term decline in the China-DPRK trade over the last three years although we have emphasized that this could be due both to the China slowdown and the fall in commodity prices in particular. The price story is partly confirmed by looking at the data on coal exports using both volume and value indicators. Yes, coal exports are flat in value terms (although UNSC 2270 suggests that they should be falling, and in theory to zero). But volumes are not flat; they are even up. Moreover, it appears that they have risen exactly in the period since the US and the ROK made the announcement about THAAD deployment. Other methods are reaching similar conclusions. Digital satellite analysis by Digital Globe of shipping out of Nampo shows no change in the level of activity since a similar snapshot taken in February, nor at a facility located a mile away that is dedicated to coal exports.

"We are not seeing anything like the distress that would be associated with rigorous enforcement of sanctions." 

These numbers will unquestionably be an issue in the negotiations over a new sanctions resolution; if China is doing nothing, why are we holding back on secondary sanctions?

On the price and exchange rate fronts, a handful of anecdotal accounts have suggested rapid price increases in the border areas most seriously affected by the recent flood. But the DailyNK data doesn’t provide North Korean won or rice price estimates in North Hamgyong province, the hardest hit region. A closer look does show a recent small increase in the price of rice in Pyongyang. But the DailyNK data on the exchange rate even shows a perverse appreciation, going from 8215 to 8025 North Korean won/1 USD in the last month.

Our conclusions: trend China trade is contracting, but it is not clear that sanctions have much to do with it; indeed, the coal lifeline is still being thrown out to Pyongyang. Moreover, we see nothing yet in prices or the exchange rate that signals any distress. As Brown points out, the current account deficit—and indeed total trade—with the rest of the world appear to be falling rapidly, with the most likely sources of non-China trade in labor export earnings. But we are not seeing anything like the distress that would be associated with rigorous enforcement of sanctions. 

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