North Korea is dominating the headlines. Every other few days new missiles are being launched, and the country’s leader also seemed to be happy with the positive results from a hydrogen bomb. Mind you, let’s still call this an ‘alleged’ hydrogen bomb, as the North Korean regime can claim whatever it wants, obviously.

Source: France24.com

The continuous provocation coming out of North Korea obviously also results in reactions from the Western world (and China) and all world leaders are condemning the missile tests. North Korea definitely doesn’t care about what other people think about the country, and we are pretty sure Kim Jung Un doesn’t lose his sleep over it.

Although the United Nations are a toothless dog when it comes to punishing North Korea (after all, a military invasion seems to be ruled out) as its only possibility to ‘punish’ the regime is through trade sanctions. Those can be pretty effective if all countries would respect and obey these sanctions, but some claimed the Chinese couldn’t care less about these sanctions (and the proposed additional sanctions), and continued to trade with North Korea.

This obviously ticked President Trump off as he openly accused China it was continuing to support the North Korean regime by buying its export products. That’s an easy remark to make as it’s a cheap political move which will be reinforced by China’s denial. That made it easy for Trump to score some points at home (‘China is still a trading partner of North Korea, and if it denies it, it’s lying’ is a cheap move), but the main question is whether or not China is indeed ignoring the UN trade sanctions against North Korea.

It was generally assumed China was covering for North Korea’s annual budget deficit which was estimated at almost  800M USD in 2016, and that’s the main reason why the previous trade sanctions were relatively harmless to the North Korean ‘economy’. China just shrugged its shoulders in the past and continued to purchase raw materials coming out of  North Korea.

Source: ABN AMRO

But much to our surprise, it does look like China is complying (or at least partly complying) with the trade sanctions. We have the impression this hasn’t been covered in the US media just yet, but the coal imports from North Korea to China have dropped to zero. Zero. And China confirmed it has now also stopped purchasing iron ore and seafood from North Korea, which will further increase the country’s cash inflow.

Source: dynamicexport.com.au

This could result in two conclusions. The first conclusion would be to see China stop buying all products where it has been publishing trade data on. The total value of the import of coal, iron ore, lead, … has been made publicly available and by showing those import levels have dropped to zero, China could claim it’s complying with the trade sanctions (whilst it continues to purchase non-reported goods from North Korea, or just give the regime the money).

But a second conclusion could be that China is effectively complying with the aforementioned trade sanctions and is now very serious about bringing the North Korean regime down. Should this indeed happen, the North Korean regime could be on the brink of collapsing by the end of this year (the structural deficit would increase to $3-4B per year assuming the export of the raw materials and seafood indeed drops to zero). As the total size of the economy is just $15B, a wide trade deficit would effectively make the country go bankrupt.

And let’s now take another step back to have a clearer overview of what’s happening here. China claimed it stopped buying the North Korean coal in February so it would comply with the trade sanctions. And it’s only several months later the Koreans started to ramp up their missile program and started to flex their muscles.

Rather than being an ‘action’, the missile tests could be a ‘reaction’ to the effectiveness of the trade sanctions, perhaps to keep the morale high by creating a common enemy…

It’s easy to blame China for the North Korean situation and tensions, but perhaps a bit cheap to do so.

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