Perspectives on China’s Coal Import Halt

February 21, 2017

On Sunday, China’s Ministry of Commerce announced that Beijing would suspend all imports of coal from North Korea for the remainder of 2017, cutting off a major source of export earnings for Pyongyang. The announcement comes nearly three months after the adoption of UN Security Council Resolution 2321, which capped North Korean coal exports at 7.5 million metric tons or about $400 million annually. The Chinese Foreign Ministry has indicated that Beijing had implemented the ban because the annual quota had nearly been met within the first six weeks of 2017. (While reported coal imports from North Korea in January 2017 alone did not begin to reach the annual cap, imports for the month of December 2016 significantly exceeded the cap for that month.)

Writing at the Peterson Institute’s Witness to Transformation blog, Stephan Haggard argues that although the timing of China’s announcement came on the heels of a North Korean missile test and the apparent assassination of Kim Jong Nam, it may not have been tied to North Korea’s recent behavior. Rather, he interprets the move as a way for Beijing to put the onus on the Trump administration to begin talks with North Korea over its nuclear program, noting that China could easily backpedal on its coal imports if it chose to.

The Choson Exchange blog argues that rising coal prices and the likely tendency for Chinese coal importers to have frontloaded sales from North Korea, combined with Beijing’s hesitancy to exceed the coal cap limit, may have prompted China to issue the ban when it did. As their post notes, UNSCR 2321’s very detailed mechanism for limiting North Korean coal exports marked a break from the more vague and flexible language of past resolutions, indicating Beijing’s intent to adhere to the resolution rather than to enforce it only minimally. In a comment on the post, however, Bill Newcomb argues that the suddenness of the coal ban sent an “unmistakable signal of top level loss of patience” in China.

Bill Brown, in a post for the Korea Economic Institute assessing the ban’s ramifications on the North Korean economy, points out that North Korean rice prices and the unofficial exchange rate for the North Korean Won will provide leading indicators on the ban’s impact, as well as the North Korean government’s response to it. Brown argues that, faced with the loss of export earnings from coal, Pyongyang could continue the marketization of the North Korean economy, privatizing state resources to support the Won and to develop more competitive exporters in non-sanctioned industries such as textiles. Alternatively, he writes, North Korea’s government might use the situation to reduce imports and increase regulations on prices and wages, attempting to re-assert centralized control of the economy.