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Report from China-DPRK border: Money, goods continue to flow into North Korea

(Yomiuri: February 23, 2016 – p. 8)


 By Takayuki Nakagawa in Dandong, China


 North Korea’s most important backer, China, holds the key to whether the international community will be able to punish the DPRK through sanctions for its unabated nuclear tests and other provocative actions. However, in Dandong, Liaoning Province, through which 70% of China-North Korea trade passes, goods and money continue to flow into North Korea even though the Chinese authorities are imposing certain restrictions. It is doubtful if China, which fears the destabilization of the Kim Jong Un regime, will really take a tough stance toward North Korea, as the international community would like it to do.


 In mid-February, a large number of people were going in and out of a high rise office building in a prime location facing the Yalu River, which serves as the border between China and North Korea. A North Korean banking institution without a signboard is located on the 13th floor of this building. Behind the wooden door bundles of Chinese yuan, remittance forms, and collections of speeches by First Secretary Kim Jong Un, General Secretary Kim Jong Il, and President Kim Il Sung could be seen piled on the counter.


 According to a Six Party Talks source, this is a branch office of North Korea’s Kwangson Bank, which handles money laundering for the Kim family’s secret funds and procures funding for the development of nuclear arms and missiles. It was named a target of sanctions by the U.S. in 2009. Although China imposed its own sanctions after North Korea’s third nuclear test (in 2013), the bank has continued operating, moving from building to building in Dandong. It is widely believed that the bank is able to continue operating because “China is not really serious about enforcing the sanctions.”


 China’s four major state-owned banks suspended transactions with North Korea in principle in 2013. As of late 2015, it had also been confirmed that some banks stopped remittances by Chinese nationals to North Koreans. However, it is also known that these four banks had had minimal transactions with North Korea anyway, so the above source complained that “China’s sanctions so far have been piecemeal and half-hearted.”


 Second-hand Yamaha pianos, a leading brand in Japan, were on display in a musical instrument shop near the Dandong customs house. Even after the nuclear test in January, two pianos reportedly passed customs and were exported to North Korea.


 After North Korea’s nuclear test in 2006, the UN Security Council (UNSC) imposed an embargo on the import and export of “luxury goods” by all countries as part of sanctions. This was meant to deal a blow to North Korea, which doles out luxury goods to senior cadres as a means to maintain the political regime. Japan has designated pianos as “luxury goods.”


 Yet, pianos, cameras, and PCs made in Japan are being exported to North Korea through Dandong. According to the report of a member of the ROK parliament, imports of luxury goods by the Kim Jong Un regime were estimated to total some $2.1 billion (approximately 236 billion yen) between 2012 and 2014.


 Figures on China-DPRK trade also reflect China’s support of North Korea. Trade volume last year was around $5.5 billion (approximately 620 billion yen). While this figure dropped from the previous year due to the decline in prices for coal, North Korea’s main export, this was still three times the volume 10 years ago. At present, China accounts for 90% of North Korea’s foreign trade.


 Several traders in Dandong confirmed that “since the nuclear test in January, inspection of cargo has become stricter. ” Yet, trucks carrying cargo to North Korea form long queues for customs clearance at the Dandong customs house each morning before crossing the China-North Korea Friendship Bridge over the Yalu River into North Korean territory. According to the local authorities, a new Yalu River bridge with four times the capacity of the existing bridge is due to open this year at the lower reaches of the river.


 North Korea relies on China for almost all its oil imports. An enormous oil storage facility in a mountainous area of Dandong is connected by 30 kilometers of pipelines passing under the Yalu River to North Korea’s oil refinery, the Ponghua Chemical Plant (in North Pyongan Province). The pipelines are indeed North Korea’s “lifeline.”


 The U.S. and other countries want to include an oil embargo in the UNSC resolution currently being deliberated to impose new sanctions on North Korea. Yet, China remains reluctant to agree to such a resolution because it is worried that this may lead to the collapse of the Kim Jong Un regime, according to an expert on China.


 Official Chinese statistics show that China did not export crude oil to North Korea in 2014 and 2015, so some believe that it is indeed suspending or controlling oil exports. However, the Ponghua Plant has continued to export a certain amount of ethylene and other byproducts of oil refining to China even after 2014. Nor has the North Korean army been observed scaling down exercises that consume fuel. The ROK government reckons that China continues to export around 500,000 tons of crude oil each year.


 According to Yukihiro Hotta, a research fellow at Kazankai [a Japan-China friendship organization] who is an expert on China-North Korea relations, crude oil bound for North Korea from the Daqing oilfield in Heilongjiang Province is high in paraffin content. Part of the reason for not stopping oil supplies to North Korea is to prevent clogging of pipelines due to congelation of paraffin. He pointed out that “suspending oil supplies as a sanction is physically impossible.” (Slightly abridged)

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