By Troy Stangarone

Full first quarter data on trade between North Korea and China is not yet available, but data released by China’s General Administration of Customs raises interesting questions in regards to ongoing trade between China and North Korea.

According to reports, total trade with North Korea grew 37.4 percent in the first quarter from the same period in 2016, with imports increasing by 18.4 percent and exports increasing by 54.5 percent. On the surface, this might seem as though sanctions are again failing, but the increase in total trade and Chinese imports from North Korea may not be that surprising. Trade between China and North Korea had been increasing in 2016 and had grown 48 percent from $1.2 billion in the first quarter to $1.8 billion the fourth quarter. Even with the new UN sanctions resolution that took effect December it is not unsurprising to see year-on-year growth from 2016 and likely should be expected with sanctions still being implemented.

Despite trade in coal with North Korea having been suspended, higher prices for coal in 2017 than 2016 likely drove total imports higher before the suspension took effect. While customs officials noted that imports of coal dropped 51.6 percent for the period, this is likely due to a drop in volume as opposed to value. China has already declared that it was approaching its import limit under UN caps for North Korean coal. In 2016, China’s total imports from North Korea in the first quarter were only $587 million. With the cap on North Korean coal imports set at $400 million and China having reported to the UN that it imported roughly $231 million worth in the first two months of 2017, it is easy to imagine year-on-year imports having increased.

This is also the case with imports of iron increasing 270 percent year-on-year. While the total trade value of iron imports was not released, the final value will likely come in around $13 million. While this will not totally replace North Korean coal exports, it is likely an indication that North Korea is looking to substitute other exports for the revenue it lost from the cap on coal exports. Going forward, iron ore, as well as exports of zinc, textiles, and seafood will be items to watch in determining how successful North Korea is at substituting exports for the lost revenue from coal.

While some the shifts on North Korea’s exports to China are not surprising, what is surprising is the increase in Chinese exports to North Korea. With a growth of 54.5 percent from the first quarter of 2016, that puts exports at close to $938 million for the quarter, or just below $974 million in exports for the last quarter of 2016.

In the end, the first quarter data likely reflects the pre-UN coal cap trade between North Korea and China and not the picture of the future trade relationship. Going forward, we should expect to see trade decrease with revenues from coal out of the picture. While North Korea will likely try to replace some of lost revenue, as is already evident, with other exports such as iron ore, it would raise flags if trade held steady or increased. In addition, if North Korea conducts further tests there will be increasing pressure on China to curtail other imports from North Korea despite the livelihood exceptions that have allowed trade to continue to flow. The first quarter trade numbers should represent a final peak before a decline rather than a new trend. That would be a good thing.

Troy Stangarone is the Senior Director for Congressional Affairs and Trade at the Korea Economic Institute of America. The views expressed here are his own.

Photo from Prince Roy’s photostream on flickr Creative Commons.