Analyst: North Korea coal trade with China operated on 'kickbacks'

Feb. 23 (UPI) -- Exports of North Korea coal to China – recently suspended for the remainder of 2017 – continued because of a trade arrangement that included kickbacks for Chinese intermediaries, an analyst said.

The coal from North Korea may also have been trading at a 34-37 percent discount compared to coal from China's other trading partners.

According to Kim Kyu-chul, a research fellow at South Korea's Korea Development Institute, North Korea may have set coal prices at an artificially low level while providing profitable opportunities for "kickbacks" for middlemen, South Korean news service News 1 reported.

In his research, the South Korean analyst says North Korea anthracite coal has been trading at two-thirds of international coal prices.

Kim's study included a survey of North Korea coal being purchased in the Chinese provinces of Shandong, Hebei, Jiangsu and Liaoning.

The results show North Korea priced coal at 63-66 percent of coal from Russia and Australia.

"Because there is no private ownership of anthracite coal in North Korea, North Korea state exporters decided to forgo higher prices in favor of setting a lower price," the analyst stated.

The system works because a North Korean exporter may sell coal that is worth $100 at a reported $50, a 50 percent markdown.

That would be the official price reported to Chinese authorities, but on an informal level the Chinese buyer of coal would pay $70, including a $20 "kickback" that must be remitted to an intermediary, according to the analysis.

The report did not specify whether the middleman figure was the government or a private participant, but noted such a transaction is possible because North Korea's state firms do not operate in a for-profit capitalist environment.

The Chinese buyer, however, still manages to purchase $100 coal at $70, but the official reported price would be $50, Kim writes.

Bribes are what keep prices artificially low, the analyst said.

North Korea recently condemned China, its "neighboring country," for "dancing to the tune " of the United States, after Beijing agreed to suspend all coal imports from North Korea last week.