Has China quietly turned off the taps flowing into North Korea?

SEOUL – What has caused North Korea’s change in policy since the last nuclear test in September 2017?  If Chinese customs data is to be believed, it may be Chinese “maximum pressure” that is bringing a change, says Alex Wolf, Senior Emerging Markets Economist at Aberdeen Standard Investments.

The data shows that China has effectively turned off the petroleum taps flowing into North Korea, far exceeding what is required by the UN.

From the data available, which admittedly is scarce says Wolf, it appears that the North Korean economy is under a great deal of pressure.

 Over the past five months, China’s exports of refined petroleum have collapsed. The average over those five months on an annualised basis equals roughly 3.7% of last year’s exported amount, and the pace is on a downward trend - suggesting that total exports could fall further.

Monthly exports averaged 282 tons of refined petroleum exports over the past five months, annualising to approximately 3,393 tons, which is far below the 90,870 exported last year.

“The pressure can also be seen through other products,” says Wolf.

“North Korean steel imports from China have collapsed in 2018, and the same can be said with cars. While it’s unclear if China is blocking such exports or North Korea can no longer afford them, the clear signal is that the economy is under a great deal of stress.”

Wolf adds: “While China’s role over the past few months has often been overlooked or little understood, it appears a strategy could be emerging: China wants to play a central role in “resolving” this crisis, but wants to do it on its own terms.

“Perhaps China decided to put immense pressure on Kim, overcoming its fear of instability and potential regime change, to convince Kim of China’s massive economic influence. 

“China’s strategy and desired outcome are still unclear, but it’s increasingly clear Chinese pressure is a driving force and China will play a central role in any future talks.

“What this means for the US is also unclear; but the current state of affairs – high level talks between North and South Korea, rapprochement between China and the North, normalisation of relations between China and South Korea following the THAAD dispute -- presents new challenges to the US.

“The diplomatic situation in East Asia is dynamic at the moment, and indeed many questions remain.”  (ATI).