Covert Chinese Trade With North Korea Moves Into the Open

China is increasingly flouting international sanctions on North Korea and is no longer trying to hide some of its smuggling activity as it seeks to help Pyongyang endure the Trump administration’s pressure campaign, U.S. officials say.

For years, sanctions busting has been a cat-and-mouse game for Pyongyang: Ships operating under foreign flags from distant nations turned off their tracking beacons and took circuitous routes to try to avoid detection.

During the past year, however, North Korea-flagged vessels have lugged hundreds of coal shipments to China’s Ningbo-Zhoushan area, according to interviews with U.S. officials and U.S. government satellite photos provided to The Wall Street Journal.

Chinese-flagged cargo ships, meanwhile, have been traveling to North Korea to take on loads of coal at the port of Nampo, the photos also indicate.

“It is not particularly disguised or hidden,” said a senior State Department official. “The fact that China is making it easier on them makes it a much more reliable revenue stream than they’ve had.”

A satellite photo provided by the State Department, which was taken Aug. 12, shows several coal vessels steaming under the North Korea flag near Ningbo-Zhoushan, China, where the vast majority of North Korean coal is transferred to Chinese vessels.

A June 19 satellite photo provided by the State Department shows a Chinese-flagged barge loading coal at North Korea’s Nampo port. The U.S. government said it has provided the photos to the United Nations Security Council.

A spokeswoman for China’s foreign ministry last week brushed aside U.S. allegations of sanctions busting. She said Washington should do more to advance the talks with North Korea and help the country deal with the effects of Covid-19 instead of making what she called false accusations that Beijing is failing to honor its international obligations.

The illicit trade between China and North Korea presents a particular challenge for the incoming Biden administration, which has said it plans to coordinate more closely with China, as well as longstanding allies, to pursue the goal of a denuclearized North Korea.

China has long supported a phased approach toward diplomacy toward North Korea in which economic sanctions would be eased in return for gradual steps by Pyongyang to limit, reduce and eventually eliminate its nuclear arsenal.

The Trump administration, in contrast, has said that major sanctions relief shouldn’t be provided before Pyongyang is well down the road toward eliminating all of its nuclear warheads and the facilities for producing them, as well as its long-range missiles.

Diplomatic talks between North Korea and the U.S., meanwhile, have broken down despite two summit meetings between President Trump and Kim Jong Un. The last meeting between U.S. and North Korea negotiators was in Stockholm in October 2019. 

“I think China is concerned about stability in North Korea,” said Joseph DeTrani, a former U.S. intelligence official who served as the U.S. special envoy to the six party talks on North Korea’s nuclear program from 2003 to 2006. The talks included the U.S., North Korea, China, South Korea, Japan and Russia.

“The North Koreans closed the border with China because of Covid-19. Sanctions are biting,” Mr. DeTrani added. “Beijing is saying, ‘Let’s see if we can ease up on Kim Jong Un and North Korea by giving them some economic viability until there is re-engagement with the U.S. and some progress toward resolution of the nuclear issues.’”

The Trump administration, however, has said that maintaining strong sanctions is the best way to force Pyongyang to make the tough decision to get rid of its nuclear arsenal and programs, and opposes easing the pressure on Pyongyang.

“They want us to relax sanctions because they think that is the key to enticing North Korea to remain calm, to actually engage and denuclearize,” the senior State Department official said, referring to China. “And that is simply a misguided idea.”

North Korea exported 4.1 million metric tons of coal between January and September 2020, according to U.S. government estimates. Those coal exports are about a fifth of what North Korea sold over a similar period before the 2017 U.N. Security Council resolution that banned coal shipments from the country, one U.S. official said.

Coal exports have grown significantly since the U.N. ban, with deals being brokered by individuals linked to North Korea’s munitions industry, the U.S. official added.

Assuming the coal sold for $80 to $100 a ton in 2020, the value of the North Korea exports would range between $330 million and $410 million. The revenue is particularly significant given North Korea’s decision to cut cross-border trade with China to try to insulate itself from the global pandemic.

North Korea has other forms of illicit revenue, U.S. and U.N. experts say. Last week, the U.S. alleged that China hosts at least 20,000 North Korean laborers, who send their earnings home.

The U.S. also alleged that Chinese companies have breached sanctions by trading with Pyongyang on a range of goods, including seafood and machinery. And it charged that China has failed to expel middlemen who work on behalf of North Korea’s missile and weapons of mass destruction programs.

Experts also say North Korea has raised millions by developing sophisticated hacking capabilities.

“Cyber theft does not produce a consistent bankable revenue stream,” the senior State Department official said. “They may have success; they may not have success. They may get cryptocurrency, but they may not be able to convert the cryptocurrency into a usable form. Coal is a more consistent revenue stream.”

North Korea’s diplomatic mission to the United Nations didn’t respond to a request for comment.

U.S. government photos, meanwhile, show that North Korea isn’t relying on many of the techniques it used to try to disguise the origin of its coal, such as using false flags, changing the names of its ships and steaming to the Gulf of Tonkin and then transferring cargo to other vessels that would bring it to ports in China.

“North Korea is not bothering with this anymore. The shipments are directly from North Korea to China,” the U.S. official said. “That is definitely a big change from what we saw initially after the adoption of sanctions in 2017.”

The economic benefits in using such direct shipments was noted in a March report prepared by a panel of experts for the U.N. Security Council.

“Ship-to-ship transfers in the Gulf of Tonkin have decreased substantially in favor of increased deliveries to the Ningbo-Zhoushan and Lianyungang port area in China,” the report said. Such routes, it added, decrease the turnaround time for coal shipment and has the advantage of “making deliveries more cost-effective.”

Photo: This satellite image provided by the U.S. government shows a Chinese-flagged vessel being loaded with coal at a North Korean port in June. - 2020 Digital Global

Link: https://www.wsj.com/articles/covert-chinese-trade-with-north-korea-moves-into-the-open-11607345372?mod=hp_lead_pos10