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For a number of years, Nathaniel Aden, Senior Research Associate with the Lawrence Berkeley Lab China Energy Group, has been monitoring bilateral China-DPRK trade in energy and other raw materials. We are fans. His latest offering, available through the always-useful Nautilus website, paints a fascinating picture of the bilateral relationship and provides a model of how to exploit existing data sources to cast light on the DPRK.
Aden starts with an excellent overview of the limitations of Chinese statistics, which include such anomalies as periodically removing North Korean data from the webiste and recategorizing trade with DPRK. As Aden notes, even when available the nature of the data may or may not include aid shipments and official development assistance (ODA), and certainly does not include direct government transfers, foreign direct investment, services, remittances, barter trade, smuggling, illicit trade, and trade in military equipment.
Aden demonstrates for energy a phenomenon that we have documented for the nuclear crisis period more generally: that whatever grumbling may be reported about China’s views of North Korea, trade has exploded, with energy playing a prominent role.
Among the other headlines:
- Mineral exports from the DPRK have growing at nearly 50% a year over the last decade, and coal exports have exploded in the last several years as well.
- But the big surprise is that the DPRK appears to be exporting electricity to China. There could be a rationale as the exports appear to be concentrated in August, when snow melt and rain feed hydropower. But as Aden concludes drily, “estimated per-capita electricity consumption in the DPRK dropped from 820 kWh in 2005 to 760 kWh in 2007, at the same time that exports to China grew from 90 to 170 GWh. As such, expanded electricity exports are not likely to mitigate, but in fact may accelerate, the DPRK's ongoing rural energy crisis.”
- When we factor together all energy output and exports, North Korea's total primary energy supply (TPES) was estimated at 18 million tonnes of oil equivalent (Mtoe) in 2007. The country exported about 7% of its TPES to China in 2007 in the form of net energy and fuel exports, mostly as coal. We are strong supporters of increased trade, but given its domestic needs such exports could fit our presumption that the regime cares more about accessing fungible sources of foreign exchange than it does providing public goods for the population.
- Between 2000 and 2008, the quantity of crude oil imports increased by 36% while total expenditures on imported Chinese crude oil increased more than five-fold, reflecting world market prices and casting doubt on the extent to which such trade is subsidized.
- By the far the most interesting findings in Aden’s research are based on a careful parcing of price data. Aden is very careful in noting that small differences in the nature of goods can have big effects on prices (for example, anthracite vs. bituminous coal). Nonetheless, the conclusions are striking. Except for coke, the extent of “friendship pricing” on the part of the Chinese has diminished substantially, and the DPRK may even be paying a premium for its oil imports. Again, as Aden concludes drily, “the consistent price differential may reflect lack of surplus in China's oil product markets, intentionally discriminatory pricing by Chinese exporters, geography, transport costs, quality differentials, risk premiums for exporting to North Korea in the face of undeveloped credit mechanisms, and/or political constraints on North Korea’s ability to import oil product from other sources.” In sum, the Chinese are not stupid.
- Another big surprise is that the friendship pricing schemes work both ways; DPRK exports of a number of commodities—including particularly electricity but also iron ore—exhibit deep discounts to world or other Chinese import prices. Again, the DPRK may not be getting favorable treatment after all.
All in all, an excellent example of economic sleuthing.
