The Chinese authorities abruptly halted the import of minerals (including coal) and fisheries products from North Korea on August 15. Many of the Chinese traders who operated factories in the targeted industries reportedly did not have enough time to extract their equipment and produce out of North Korea before the sanctions took effect.
In Rason City (North Hamgyong Province), factory owners were able to move some of their equipment by August 14 before the sanctions took effect, but most of the traders operating factories in Chongjin (North Hamgyong Province) and Hamhung (South Hamgyong Province) did not have enough time to move anything.
“Most of the Chinese traders in Chongjin and Hamhung are stuck in North Korea because they weren’t able to move their equipment out of the country ahead of the sanctions. They cannot even extract the products they purchased in large quantities to import into China,” a source in China familiar with issues in the border region told Daily NK on August 22.
“The traders, who purchased significant volumes of fisheries products during squid season, are in despair because they’re expecting to suffer great losses. Some traders estimate that their combined loss of factory equipment and produce will amount to 15 million RMB (approx US$2.3 million).”
“Chinese traders are unhappy with the current sanctions against the North. They loudly complain that they will be unable to recover their investments in North Korea because the Chinese authorities did not notify them beforehand,” he added.
However, it appears that some Chinese traders were indeed informed ahead of time that the Chinese government planning to impose sanctions against the North from August. Another source familiar with North Korean affairs in China told Daily NK that “some of the Chinese traders operating factories in North Korea were notified by the Chinese authorities on August 14 to withdraw from North Korea by midnight, because the sanctions will soon be in effect.”
Regardless, even those who informed beforehand are set to incur losses as they were unable to move many assets within the space of a day.
The North Korean authorities also played a part in delaying the withdrawal. “The Chinese authorities said they would keep the customs office open until midnight, but the North Korean customs offices closed their gate at 7pm and ignored the requests of the Chinese traders. Many of the traders were stuck because it also happened to be a North Korean national holiday (Liberation Day) on August 15, the first day of the new sanctions,” the source explained.
“Since August 15 when the sanctions took effect, the Chinese customs offices strengthened their inspections for sanctioned items including fisheries products. North Korea will find it difficult to export those types of products for the time being.”
The contracts that all Chinese traders signed when they established their factories also hindered prompt action. Some North Korean regions include a clause stipulating that “facilities and products invested by Chinese traders cannot be moved out of the country without prior consultation or consent from North Korea,” in the contracts. The clause is said to be applied even if the transaction between the parties is suspended before the contract expires.
Both sources reported that it is likely that most of the Chinese factories in North Korea will stop operating due to sanctions on North Korea, but the traders will not be able to extract any of their assets.
“In the end, the factory infrastructure will fall into the hands of the North Korean authorities,” one source pointed out.
Meanwhile, some Chinese traders are reportedly smuggling North Korean products they have already purchased via the border region. “Smuggling efforts for fisheries products and export items to China on a freight train were detected, and the traders have no choice if the customs offices are closed,” he said.