September 14, 2017 3:32 am JST

China may have cut North Korea textile trade before UN sanctions

Beijing's solo act suggests growing frustration with Pyongyang

SOTARO SUZUKI, Nikkei staff writer

This clothing factory operates in the Chinese city of Dandong, where roughly 70% of the country's trade with North Korea is based.

SEOUL -- China may have suspended textile trade with North Korea even before Monday's adoption of a United Nations Security Council resolution banning such transactions, acting unilaterally to pressure the reclusive state into ending its nuclear provocations.

The suspension has been in place since late August, according to a source contacted by The Nikkei. "Chinese customs stopped processing cargo from North Korea two weeks ago," said this individual, who has close knowledge of a Chinese company that outsources apparel production to the North. Earlier that month, Pyongyang threatened to fire a ballistic missile into waters near the U.S. territory of Guam.

"The North Korean side has stopped loading their ships because they can't get through customs," the source said. "The situation is the same for other companies as well, and apparel trading between China and North Korea has effectively been suspended."

Beijing has provided no explanation, according to the source.

Textile factories dot Liaoning Province's Dandong, a border city where roughly 70% of the country's trade with North Korea is based, as well as Hunchun in Jilin Province's Yanbian Korean Autonomous Prefecture, producing clothing on commission from manufacturers around the world. Some of the work is outsourced to North Korea.

An affiliate of a Pyongyang-backed textile trading company takes the orders, sets the rates and distributes the work to plants throughout North Korea, according to a source familiar with the matter. About 80% of these factories are run by the North Korean side, while the rest are joint ventures with Chinese companies. They purchase the materials from China and ship the finished products back over the border. These plants "also produce clothing for well-known European brands," the source said.

The South Korean government estimates that the North makes $760 million a year from exports of textile products. This amounts to 26% of North Korea's total exports, the country's biggest earnings source behind coal. The newest U.N. sanctions will deal a blow to Pyongyang, but also will affect Chinese companies.

China opposed including a total embargo on oil in the latest U.N. sanctions. If it is the case that Beijing took unilateral action against North Korean apparel even at the risk of hurting Chinese businesses, its frustration with Pyongyang must be fairly strong.

Still, many think China is not fully committed to the sanctions and serves as a loophole for North Korea. Though Beijing wants to discourage Pyongyang from conducting further military provocations, it is hesitant to take any action that could cause turmoil in North Korea ahead of the Communist Party's twice-in-a-decade leadership meeting in October.

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