Here's How China Is Screwing North Korea's Economy

Coal consumption in China dropped last year for the first time since the turn of the 21st century. For environmentalists, it was a welcome signal that the world's largest coal consumer is finally turning away from the dirty fuel that's powering its economic growth — and contributing to climate change.

But the shift may mean bad news for North Korea, which relies almost entirely upon China to import its coal, iron ore, and other natural resources. In the first half of 2014, anthracite coal accounted for about 44 percent of China's imports from North Korea, a drop from 48 percent in 2013 and nearly 50 percent in 2012.

"China is in the midst of an economic slowdown and, in general, there has been an effort to diversify away from coal," Scott Kennedy, a China expert at the Center for Strategic and International Studies, told VICE News. "So it's no surprise that coal imports from North Korea declined."

China is the largest consumer and producer of coal in the world. Coal accounted for 69 percent of China's energy consumption in 2011, according to the US Energy Information Agency. The agency notes that it is by far the largest producer of coal — mining over four times as much as the next largest producer, the United States.

In recent years, China has become more protective of its own coal mines, reducing imports in order to ensure that they can remain in business as coal consumption around the world declines. Last October it imposed an import tariff on coal for the first time in nearly 10 years, taxing it as much as six percent.

"They're definitely trying to protect some of these coal mines," Kevin Stahler, a research analyst at the Peterson Institute for International Economics, told VICE News. "It's hard for them to survive in this atmosphere where coal is cheap."

Related: People in China can no longer watch this environmental documentary

China has also begun to reject North Korean coal that doesn't meet new environmental standards for mercury emissions, part of the country's effort to reduce the air pollution that's plagued its cities in recent years.

That means trouble for North Korea. Its economy is hugely dependent on China. Outside of a small trade with South Korea, few countries are willing to engage in economic activity with the isolated nation. In 2013, its exports were valued at around $3.6 billion — $2.9 billion of which went to China.

And the value of the coal North Korea is managing to export is also dropping, largely due to fluctuations in international markets and lower global demand. Declines in coal prices in the first half of 2014 meant a loss of about $340 million for North Korea.

"When you're talking about total trade around $8 billion dollars, and North Korea is probably losing hundreds of millions of dollars on falling volume prices, that's a significant chunk of North Korea's external financing," Stahler said.

To make up for the loss, North Korea may be turning to another natural resource: rare earth minerals. A 2014 report from the Korea International Trade Association found that Pyongyang's rare earth exports to China totaled $1.8 million in just two months.

Related: Only eight of China's 74 major cities passed government air quality tests

The country has also been increasing its exports of textiles to China, where economic growth has meant rising wages and more demand for manufactured clothing. In the first half of 2013, exports of textiles and accessories to China totaled $326 million, nearly what North Korea lost on coal in 2014.

Whether these strategies will work over the long term remains to be seen, Stahler said, especially given that China's demand for coal and steel is unlikely to in the near future.

"North Korean officials are very aware that they can't fully rely on this continued growth in natural commodities, and they have to reorient to some degree," he remarked. "But how they're going to reorient and how they're going to get away from dependence on China, who knows?"

Follow Laura Dattaro on Twitter: @ldattaro