By William Brown

Second quarter trade data recently released by China, and April and May data released by other major trading countries, suggest the March 2 UN sanctions are having little impact so far on North Korea’s economy although they may be making Pyongyang even more dependent on China. Trade with countries except China seems to be slipping but, because it was so low to begin with, the significance pales in comparison to the large and generally flat pace of China-North Korean trade.

We also can discern little impact of the sanctions on the domestic North Korean economy. Observed market prices of rice and other staples have been unusually stable this year as has the widely used unofficial market exchange rate of North Korea’s won against the U.S. dollar. One would think the “toughest sanctions ever” would have caused a flight to the dollar and away from won but it hasn’t, possibly because the dollar has become too intertwined in North Korea’s domestic finance. But one thing is clear, the sanctions create hurdles for Pyongyang’s foreign investment elicitation, and investment in the country, aside from apartment buildings that may be funded by Chinese investors, appears to be very low. This might spell trouble for Kim’s “byong-jin” policy in the future, but not now.

China is always the first major country to report monthly trade data. With a full quarter now available following Beijing’s April 4 posting of regulations backing up the March 2 UN Security Council sanctions, few changes can yet be detected in the China-North Korea relationship.

China’s exports in the second quarter were $796 million, up 31 percent from the first quarter (not seasonally adjusted) and up a slight 3 percent from second quarter 2015. This does not count what we presume to be about $50 to $100 million in crude oil shipments each quarter that China inexplicably no longer counts. Compared to the second quarter of last year, small increases occurred in many product lines with no one product dominating. Computer and communications products are the largest items and show some growth as do inputs into the textile and other industries. Petroleum products are essentially flat and no jet fuel—prohibited by the new sanctions—have been recorded since 2014. Cereal sales, rice and corn, including items purchased in China by aid agencies and given to North Korea, have dropped to almost nothing in the past two years. Almost no industrial equipment is being shipped implying Pyongyang’s attempts to draw in industrial investment are not paying off.

China’s imports in the second quarter were $548 million, down 4 percent from $569 million from the first quarter and down 14 percent from second quarter 2015. The year-to-year drop was fully accounted for by a drop in anthracite coal shipments, which at $246 million in the second quarter, occupied half of Chinese imports. These may have been impacted by the sanctions, since importing coal from North Korea is prohibited if the revenue goes to the military or to anyone associated with the nuclear industry, but the decline is due mostly to a drop in prices—the volume of coal shipped remains high.

Virtually no precious metals, also prohibited by the UN sanctions, were imported by China but these are generally low to begin with. The combined value of iron ore and nonferrous metals (lead and zinc) ores increased in the second quarter from unusually low rates all through 2015, but are not back to normal levels. This may have more to do with demand conditions in China than in North Korea given weakness in its metallurgical sector. Since iron ore is sanctioned and lead and zinc are not, it will be interesting to see if Pyongyang can shift mining to its ample non-ferrous metals reserves.

Chinese imports of North Korean textiles had grown very rapidly in recent years, suggesting that North Korea was taking advantage of a comparative advantage in textiles and that Chinese managers could see a large wage differential developing between itself and North Korea. These imports have dropped in recent quarters, however, despite the fact that sanctions would not seem to apply to this industry.

China runs a small predictable trade surplus with North Korea, according to its customs data, and this jumped in the second quarter to $248 million. This might suggest China is draining North Korea’s foreign exchange, an interesting predicament for those trying to run Pyongyang’s monetary policy since foreign exchange occupies a significant share of the domestic money supply. This would tend to hold back inflation at the expense of growth and we do see some of that in the North Korean economy. On the other hand, the data does not include services trade, from which Pyongyang probably earns a surplus, nor transfer payments, another larger earner for North Korea given its workers abroad. Overall, we can be pretty sure that North Korea’s current account is close to balance since it isn’t bringing in any significant investment and has poor access to credit. This is the same phenomena one would see in one’s personal accounts—if your credit card is taken away your expenditures will pretty quickly get in line with your income. Unfortunately, Pyongyang does not publish balance of payments data—which would combine all of its foreign transactions. Pyongyang should be required to publish such data if it is ever to be serious about bringing in investment.

Scattered reports compiled by a trade data aggregator, using data reported to the UN that is sometimes initially unreliable, puts into perspective how truly reliant on China Pyongyang has become. North Korea’s most natural big trade partners outside of China, are South Korea, Japan, and the United States, all three of which now have such tight restrictions on North Korea that each records virtually no trade. After China, India has become North Korea’s second largest partner but at only 4 percent of China’s volume. Its total trade with North Korea, exports plus imports, fell 8 percent in the year through April from the same period of 2015. North Korean ships sold for scrap constitute the largest item. Data through May show that North Korea’s overall trade with Russia fell 11 percent to only $28.7 million; trade with the entire EU trade fell to $13 million, down 16 percent; trade with Taiwan fell to $10.1 million, down 34 percent; and trade with Brazil fell to $5 million, down 48 percent. Amazingly, no significant trade increases between North Korea and anyone in the world can be seen so far this year.

William Brown is an Adjunct Professor at the Georgetown University School of Foreign Service and a Non-Resident Fellow at the Korea Economic Institute of America. The views expressed here are the author’s alone.

Photo from Greg Goebel’s photostream on flickr Creative Commons.