North Korea sanctions hurt another victim - China's rust belt

Dozens of wholesale stores were shuttered, dealing a blow to the packagers, distributors, drivers and restaurateurs who depend on the trade.

BEIJING (BLOOMBERG) - Along China's border with North Korea, residents are more worried about feeding their families than the possibility of nuclear war.

In Hunchun, a city of about 230,000 people near China's shared frontier with North Korea and Russia, protests briefly broke out last month after the United Nations Security Council approved sanctions banning exports of seafood and other goods from North Korean leader Kim Jong Un's regime.

Dozens of wholesale stores were shuttered, dealing a blow to the packagers, distributors, drivers and restaurateurs who depend on the trade.

"Many people are unemployed now," said Liu Guanghua, 41, who owns one of the few businesses still open on what is known as Seafood Street. "Sanctions should be against the North Korean government, but this impacts regular people in China and North Korea."

Towns on the southeast fringe of China's rust belt were already struggling with the decline of heavy industries such as steelmaking and coal mining before becoming collateral damage in the US-led push to isolate North Korea.

The risk of social unrest due to job losses is a sensitive issue for Chinese President Xi Jinping, particularly as the Communist Party (CPC) prepares for a twice-a-decade reshuffle of top leaders next month.

The ability to deliver robust economic growth helps underpin the CPC's legitimacy in the country's one-party system.

So while US President Donald Trump has threatened a trade war if Mr Xi does not use his economic leverage to curb North Korea's nuclear ambitions, authorities in Beijing need to also weigh the domestic cost of implementing sanctions.

The provinces of Jilin - home to Hunchun - and Liaoning have not had much success finding new drivers of growth after Beijing began scaling back its support for state-owned enterprises in the 1990s, paving the way for entry into the World Trade Organisation in 2001.

The central government has showered the region with subsidies and investments for the past decade, but few factories have opened to take the place of the shipyards and petrochemical plants that once powered growth.

Liaoning, where officials recently admitted they falsified economic statistics for years, saw output shrink 2.5 per cent last year - the only one of the 31 provinces administered by Beijing to register a contraction. That served as a drag on China's national growth rate of 6.7 per cent, the slowest pace in about a quarter century.


Reporters visiting an industrial park in the provincial capital of Shenyang this month (September) saw scores of shuttered factories, while men squatting on the streets held red-lettered signs asking for work.

"A loss in border trade could potentially destabilise China's strategic plan to revive the industrial economy in the northeast, a plan the central government won't allow to be disturbed by international affairs," said Lyu Chao, who studies border issues at the Liaoning Academy of Social Sciences in Shenyang. "Maintaining stability in northeast China is very important to the government."

While Beijing has joined the international community in condemning North Korea's missile launches and nuclear tests, it does not want a war on the Korean peninsula or Mr Kim's regime to collapse. Either event may trigger a rush of refugees and the potential for US troops on its border, risking social unrest and a heightened security presence that could further hinder trade.

According to data compiled by the Observatory of Economic Complexity, an MIT project, China supplied 85 per cent of North Korea's US$3.47 billion (S$4.69 billion) in imports in 2015 and absorbed a similar share of its US$2.83 billion in exports.

Foreign Ministry spokesman Hua Chunying said at a briefing this month that China has made "enormous sacrifices and paid a heavy price" to comply with UN sanctions.

A trader in Dandong, a city of 2.4 million on the Yalu River that lies between China and North Korea, said he traded everything from textiles to tires across the border in the 1990s, after he was laid off from his job as a procurement officer at the "Number 2 Construction Factory", an enterprise owned by the city government.

"Now I'm sitting idle," Mr Wang, who asked to be identified only by his family name, said while eating North Korean clams at a local restaurant. "Traders like me have lost money after sanctions hit."

Evidence shows that authorities in border areas previously maintained a balance between complying with Beijing's requests and protecting the local economy, according to Zhao Tong, a fellow at the Carnegie-Tsinghua Centre for Global Policy in Beijing. But that is changing: "Now that the central government has a stronger stance and is resolved to take the sacrifice of the local economy, local governments will have to go along with it."

Residents along the border do not seem very concerned by Mr Trump's repeated threats to use military force against North Korea - most recently before a gathering of world leaders at the UN General Assembly in New York.

After Mr Trump threatened to "totally destroy" North Korea if attacked, its Foreign Minister called the warning "the sound of a dog barking".

"This is a peaceful area," said Fang Hexiang, 37, who sells locally brewed liquor called baijiu in Dandong. "They've been there since we were kids and there has been no war."

Korean restaurant owner Piao Zhongzhe is confident that Mr Kim would not point his missiles at China.

"They're doing that to the US, not to China," the 59-year-old said of the frequent missile tests. "They wouldn't dare to do anything to China because China would destroy them in a few minutes."

While smallish local protests are common in China, one in Hunchun after sanctions came into effect in August was notable for directly criticising the country's foreign policy. Photos of the event that circulated on social media showed traders holding banners calling for cargo to pass across the border and accusing the government of hurting Chinese citizens.

By this month, stoicism was setting in. Liu, the store owner in Hunchun, said that while dozens of shops around him have closed, he is shifting to importing seafood from Russia.

"There's nothing the local government can do," Liu said. "I was angry when I first found out, but being angry is pointless."

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