The dirty reason why China can't always tell North Korea what to do

Global consumption of coal has declined significantly over the last year, driven by China, which makes up about half of the world’s demand for coal.

But the Asian giant’s break from one of the world’s dirtiest fuels is unlikely to be a clean one: While China seems to be reducing coal production and consumption domestically, political concerns suggest that Beijing will maintain support for coal production in North Korea.

This relationship has led China to push for sanctions exemptions for its coal trade with hermit kingdom, even as Beijing winds down its own coal production — the livelihood of an increasingly restive portion of the Chinese population.

‘There isn’t going to be change’

China’s economy grew 6.9% in 2015, the lowest rate in 25 years, and Reuters has reported that the government intends to lay off 5 million to 6 million state workers over the next two to three years, “as part of efforts to curb industrial overcapacity and pollution.”

In northeast China, a hub of industrial and coal production, those layoffs have already started.

Local economies in parts of Heilongjiang, in far northeast China, fell 10% in 2014. Coal prices in those areas have fallen by half since 2011, and the Chinese pullback from coal and heavy industry has left many workers without work and with few prospects.

China coal production 2020Courtesy of StratforProjections for Chinese coal production in 2020, much of which will come from the country’s north.

Chinese leadership has promised that the 1.8 million workers who will be fired from government-run coal and steel firms (others will be laid off from private companies) will be retrained and rehired.

“The opportunities for middle-aged or even elderly former coal miners and steel plant workers are more limited in a province where the economy really has slowed to virtually zero,” Geoffrey Crothall of the nonprofit China Labour Bulletin, which has tracked a significant spike in labour strikes in China over the last six months, told The Associated Press.

Unrest has grown in the northeast, and large protests have taken place. Many workers, mostly young ones, have left the area for manufacturing centres in southern China, according to the AP.

Those who remain, and still have work, say they haven’t been paid in months.

“I don’t even have anywhere left to borrow money from,” Li Jiuxian, a 51-year-old miner in Jundeshan, in northeast China’s Heilongjiang province, told the AP outside a dingy mahjong parlor. “There isn’t going to be change.”

‘The government hasn’t issued any notice’

Despite the domestic measures that have diminished coal production, China seems more reluctant to put checks on the coal it brings in from North Korea.

“Over two weeks after the United Nations slapped harsh new sanctions on North Korea, several Chinese shipping and trade sources say they have not been told of any curbs on the import of coal from the isolated nation,” Reuters reported in mid-March.

Coal is North Korea’s largest export and one of its only sources for hard currency.

“At this point, nobody has come to us and said you shouldn’t do it,” an official at a company in the port city of Dalian that imports North Korean coal and other goods told Reuters. “I’m not even clear on what the specific sanctions are.”

While China has taken action against some North Korean traders in line with sanctions on the latter country’s weapons programs, Chinese officials and other experts have cautioned that taking too hard a line against the pariah country could lead to economic disaster.

“China regards stability on the Korean peninsula as its primary interest,” a report from the Council on Foreign Relations noted earlier this year, citing China’s desire to maintain a strategic buffer between it and South Korea as well as Beijing’s fear of a wave of North Korean migrants heading north should their country collapse.

Moreover, keeping the current North Korean regime in power accentuates Chinese authority in the region, prevents a pro-West government from coming to power, and forestalls the possibility of North Korea’s nuclear material falling into the wrong hands, according to Douglas Schoen and Melik Kaylan in “The Russia-China Axis.”

Coal deliveries to China from North Korea spiked by 26.9% in 2015, according to Reuters, to 21.7 tons with a value of $1 billion.

While Beijing, which is North Korea’s biggest trading partner, has become more willing to criticise and punish Pyongyang, it has also worked to carve out exceptions to sanctions imposed by the international community.

China North Korea Trade CFREleanor Albert, Julia Ro/Council on Foreign RelationsChina is North Korea’s biggest trading partner, and its source for many essential goods.

“I think it’s an indication that the Chinese managed to negotiate a wide exemption for the coal trade,” Andrea Berger, deputy director of the proliferation and nuclear policy program at the Royal United Services Institute, told Reuters.

“Coal is a big lever for them,” Adam Cathcart, a North Korea-China specialist at the University of Leeds, said to Reuters. “They’re wise from the Chinese standpoint to keep some leeway (so) they’re not branded as sanctions violators if a train goes from China to North Korea (carrying resources).”

Rough neighbourhood

Despite all its economic and military power, China’s continued willingness to take North Korean coal is likely a sign that it still can’t totally dictate its relations with Pyongyang — which has few other friends.

“It’s clear that the Chinese have enormous leverage over North Korea in many respects,” said Daniel Sneider of Stanford’s Asia-Pacific Research Center, according to the Council on Foreign Relations.

“But can China actually try to exercise that influence without destabilizing the regime? Probably not.”

At a time when China is navigating its own domestic economic distortions (and the fraught political conditions they have wrought) as well as a contentious geopolitical scene in the South China Sea, a quiet North Korea is likely in its interest, even if that means shelling out for more dirty coal.

“There is no reason to think that political risks emanating from North Korea will lead China to withdraw its economic safety net for North Korea any time soon,” Council on Foreign Relations senior fellow Scott Snyder wrote in mid-2014.

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