China's anger towards North Korea

Guards in green fatigues waved down the 40-ton truck at the Nanping customs crossing from China to North Korea, inspecting papers before allowing it to rumble onto the bridge into the isolated state. The truck, part of a daily convoy, returns the same day laden with iron ore to feed China's steel industry, the world's biggest.

As many as 45 trucks cross at Nanping each day, returning in the afternoon with as much as 1,800 tons of ore from a mine in Musan in North Korea's Hamgyong province, estimated to be the biggest in Asia outside Australia, with reserves of 2.2 billion metric tons. The flow hasn't slowed since China criticized North Korea for detonating a nuclear bomb on Oct. 9.

China's demand for iron ore is one of the economic realities that stand in the way of United Nations sanctions to choke off income to North Korea to block its nuclear weapons program. For North Korea the trade is a crucial source of foreign exchange for the country's cash-strapped regime.

"Mining and iron ore are strategic industries for both countries and it's in neither of their interests to cut back," said Roger Barrett, a partner at Korea Business Consultants in Beijing, which advises foreign investors and companies looking to doing business in North Korea. "Both countries will want to continue to this trade for the livelihoods of their peoples."

With iron ore prices at records and most of the supply controlled by BHP Billiton Ltd. and a few other global mining companies, shipments from North Korea helps China's steel industry at a time when the country is producing record amounts of the metal to build office towers, Olympic stadiums and subways.

Trading ore

The ore crossing at Nanping alone earns North Korea as much as $35 million a year, based on average prices, essential income for a country facing international sanctions and seized bank accounts over its nuclear weapons program.

The cleanliness of the recently built Nanping customs office, a three-story structure with a grey stone facade, stands out among the rest of the village's rickety dwellings with warped roofs.

Behind customs, two guards inspect each empty truck heading across the 250-meter span. No structures stand on the North Korean side, where two guards visually inspect each truck again.

The ore passing through Nanping goes to state-owned Yanbian Tianchi Industry & Trade Co., according to three of the truck drivers, who declined to give their names. Yanbian Tianchi Spokesman Jiang Hongyu declined to say how much iron ore it gets from Musan, citing "sensitivity over trade with North Korea."

Refining metal

The company refines the ore in this corner of Northeast China and ships it to steelmakers in the province of Jilin, including Tonghua Iron & Steel Co.

Those companies will spend 4 billion yuan ($506 million) developing the Musan mine, the Chinese-language Economic Observer reported on Jan. 24.

China's iron ore imports surged 32 percent to 275 million tons last year.

The nation accounts for 53 percent of iron ore sales for BHP Billiton for the year ended June 30, and 47 percent of Rio Tinto Group's sales for calendar 2005.

Shipments of iron ore at Nanping have continued as usual this month, said one truck driver, who declined to give his name, even as China joined the U.S., Russia, South Korea and Japan in condemning Pyongyang's nuclear test and imposing sanctions on the country. There haven't been changes in the way the trucks are monitored either, the drivers said.

On Oct. 10, China demanded North Korea abandon its nuclear weapons program and said the nuclear test has "negatively impacted" their relations.

"We will continue with relations, but they are premised on mutual benefits, preservation of peace in the Asian region and a nuclear-free peninsula," China's foreign ministry spokesman Liu Jianchao said at a briefing in Beijing.

Preserving peace

Tonghua Steel, which plans to double steel output to 5.5 million metric tons in 2007, will jointly develop the mine with North Korea for between 30 and 50 years, the Observer's report said, citing Zhang Zhidong, vice general manager of the company.

The Musan mine is less than 10 kilometers from the Tumen river, which divides China from North Korea along its upper border. Yanbian Tianchi's refinery, which sends its trucks each day over the 300-meter bridge, is further inland.

The mine reserves of ore have an average 24 percent iron content, according to data compiled by Korea Business Consultants.

Baosteel Group Corp., China's biggest steelmaker, accepted a 19 percent increase in this year's ore price on June 20, matching gains agreed between European, Japanese and other Asian steelmakers and suppliers including Australia' BHP, Rio Tinto and Brazil's Cia. Vale do Rio Doce. Baosteel had tried to resist the increase. Soaring demand from China and limited mine expansion drove prices to rise for a fourth straight year.

Korean trade

North Korea's foreign trade almost tripled to $4.4 billion dollars in 2005, from $1.6 billion in 1998, according to the Trade Statistics Yearbook of the Democratic Republic of Korea, published last month by WTS CO., a Japan-based statistics publisher.

China was North Korea's largest trading partner in 2005, accounting for 36 percent of the total. North Korea's largest exports in value terms are fish, clothing, coal, electrical appliances and iron ore in that order.

Two thirds of North Korea's exports to China are raw materials, primarily coal and iron ore. North Korea drew international condemnation after it tested its first nuclear bomb. The United Nations Security Council, on which China has a seat, voted unanimously on Oct. 14 for Resolution 1718, which demands North Korea refrain from carrying out another nuclear test and return to six nation talks on ending its atomic weapons program.

North Korea has refused to return to six-nation talks with the U.S., China, Japan, Russia and South Korea until the administration of U.S. President George W. Bush removes financial sanctions imposed last October. Chinese Foreign Ministry Spokesman Liu reiterated last week that his ministry wants a resumption of the stalled talks.

North Korea, labeled part of an "axis of evil" by Bush in January 2002 along with Iraq and Iran, has isolated its citizens for almost 60 years, under Kim Il Sung and his son Kim Jong Il, who has ruled since 1994.

The nation of 23 million depends on outside aid, increasingly from China and South Korea, because of years of flooding, drought and economic mismanagement. Food shortages killed as many as 2 million people during a famine in the 1990s, according to the U.S. Agency for International Development.

(Bloomberg)