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N. Korea’s trade woes could point to need for cash


    Tourists look across the Tumen River from China toward the town of Nanyang in North Korea in 2010.

DANDONG, China >> After sunset, when U.S. spy satellites can no longer see as well, the main bridge connecting China to North Korea comes to life.

One by one, trucks laden with Chinese goods rumble across the Sino-Korean Friendship Bridge here, long an economic lifeline for North Korea. The covered trucks offer little sign of what might be inside, though Chinese customs data offer clues: heavy machinery, refrigerators, even beer.

The data also suggest something else. The trucks are increasingly coming back empty. And that could present a potential weak point that the Trump administration and others could exploit, if China is willing to go along, as they look for ways to persuade North Korea to give up its nuclear weapons and ballistic missiles.

Even as China sells more goods to North Korea, it is buying less from there, according to trade data and experts on the relationship between the two. North Korea’s finances are hidden by a veil of secrecy. But that worsening trade imbalance appears to be deepening North Korea’s need for credit from China or for cold, hard cash from somewhere else.

“My best guess is that North Korea is receiving trade credits from those providing it with goods and services — that is to say, China,” said Steve Hanke, an economist at Johns Hopkins University who studies China’s financing of rogue regimes like those in North Korea and Venezuela.

The steady flow of Chinese goods may be a clue to why economic sanctions have had little effect on North Korea. While the sanctions may cut North Korea’s export income, it can still procure goods to keep its urban elites happy with a little help from Beijing. And overall, since Kim Jong Un took power five years ago, North Korea’s underdeveloped economy has shown signs of faster growth.

Chinese officials have insisted they are obligated only to stop trade in certain restricted items. Those include Chinese exports of nuclear equipment and, under new international sanctions, imports of North Korean iron ore and seafood.

“As neighbors, China and North Korea maintain normal trade,” Huang Songping, spokesman for China’s customs administration, said at a briefing in July.

U.S. officials have long focused on North Korea’s finances as a major vulnerability. More than a decade ago, they cut access to the U.S. financial system for a bank in the Chinese territory of Macau that they accused of helping Pyongyang. Last year the United States took further steps to cut off North Korea’s access to the global financial system.

Despite North Korea’s estrangement from most of the rest of the world, it still needs foreign currencies to get by. North Korea has a currency (called the won, like South Korea’s), but the money is worthless outside its borders.

Even in Dandong, within sight of North Korea, eight merchants said in separate interviews that they do not accept the North Korea currency. Foreign exchange windows at local banks refuse to handle it.

That has left North Korea heavily dependent on its trade with China.

For years, Chinese purchases of coal and other goods gave North Korea a steady source of money.

That source no longer looks so steady. North Korea bought $2 worth of goods from China in July for each $1 of sales to China, as China has essentially halted purchases of North Korean coal since mid-February. For the first seven months of the year, North Korea ran a trade deficit with China of nearly $1 billion, almost four times the amount of a year ago.

North Korea may need to buy even more from China in the months ahead amid a drought. On the Chinese side of the border, hundreds of miles of cornfields were visibly more than a foot shorter and less developed than they should be.

Some in Congress have begun talking about legislation that would target leading Chinese banks’ use of dollar-based payments systems as a way to hit North Korean trade. But financial specialists say they worry about unforeseen payment difficulties, which were a big worry during the global financial crisis in 2008.

“What the legislators do not know, and it’s a little scary, is what these restrictions would mean for China,” said Elizabeth Rosenberg, a former North Korea specialist at the U.S. Treasury who is now at the Center for a New American Security, a Washington research group.

To avoid that, Chinese banks could simply lend extra money on easy terms to state-owned Chinese enterprises, which in turn could keep selling goods to North Korea without demanding payment.

Continuing trade on credit may explain why North Korea shows few indications of a money pinch, such as surging prices for rice and other essentials.

“Frankly, you just haven’t seen it,” said Kent Boydston, an analyst at the Peterson Institute for International Economics in Washington.

North Korea has other ways to get cash, though estimating those amounts is tricky work.

It could attract foreign investment toward developing natural resources. But China shows few signs of making such big investments, and it supported U.N. sanctions in early August that would halt purchases of iron ore, coal and other assets.

North Korea can also tap what is euphemistically known among economists as “errors and omissions,” which in North Korea’s case has included narcotics trafficking, counterfeiting, gunrunning and the sale of advanced weapons technology to other rogue regimes. Experts say North Korea is also probably behind a number of high-profile computer hacking attacks that sought large sums of money.

North Korea gets money from its citizens overseas, who must remit most of their paychecks to the government. But with the United Nations tightening that source as well, there has been little sign of a huge recent increase in these revenues, said Melanie Hart, a senior fellow at the Center for American Progress, a Washington research group.

Shoppers and shopkeepers in Dandong — who spoke on the condition of anonymity for fear of Chinese government reprisals — said North Korean workers were a common sight, though there has been little sign of an influx. One said many lounge singers and bar hostesses here are young women from North Korea. Their monthly pay is about 3,000 renminbi, or $460, but they keep only about a quarter of that.

China’s decision early last month to ban imports of North Korean seafood seems to be having an effect. At an open-air seafood market in Dandong, only one vendor in a row of four said she had North Korean merchandise: a handful of live crabs. Other vendors complained they had to buy more-expensive Chinese shellfish for sale instead.

For now, the trucks continue to cross the World War II-era steel frame bridge here at night to North Korea.

A nearby resident, looking at the trucks and the occasional young men who run up to drivers with packages to deliver to friends and family in North Korea, said the scene had not changed for a long time.

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