Tag Archives: smuggling

China Caught Between Smuggled Oil And Trade Wars

BOTH CHINA AND Russia deny Western accusations that their vessels have been involved in ship-to-ship transfers of oil on the high seas to North Korean tankers in likely contravention of UN sanctions against the Pyongyang regime for its missile testing programme.

Since November, South Korea has detained two ships — one Hong Kong- and the other Panama-registered, alleged to have been involved in such transactions while the UN Security Council has blocked three North Korean- and one Palau-flagged ships from docking at international ports on suspicion of carrying or transporting goods banned by sanctions.

The United States has a list of six more such vessels it wants internationally sanctioned, five China-flagged and one Hong Kong-flagged. Last week, Beijing blocked Washington’s efforts at the UN to have the six ships blacklisted.

In September, the UN cut North Korea’s allowed imports of refined oil to 2 million barrels a year. Its latest round of sanctions further cut the annual quota to 500,000 tonnes and 4 million barrels of crude oil, required the repatriation of all North Korean contract workers abroad within 24 months, and a crackdown on ships smuggling banned items including coal and oil to and from the country.

The United States had wanted a complete ban on oil imports and a freeze of the overseas assets of the government and its leader, Kim Jong-un. That it did not get them, seems to have frayed the patience of the ever-mercurial US President Donald Trump. He told the New York Times last week,

“I have been soft on China because the only thing more important to me than trade is war…If they’re helping me with North Korea, I can look at trade a little bit differently, at least for a period of time. And that’s what I’ve been doing. But when oil is going in, I’m not happy about that.”

Trump had earlier tweeted that China had been “caught RED HANDED” (his all caps) allowing oil into North Korea.

The prompt for that public accusation was a Chosun Ilbo report quoting South Korean government sources as saying that U.S. spy satellites had detected Chinese ships transferring oil to North Korean vessels about 30 times since October. Which is a very roundabout way for a US president to make an accusation based on his own country’s intelligence, especially since U.S. State Department officials have confirmed Washington had evidence that vessels from several countries, including China, had engaged in transshipping oil products and coal to North Korea.

China had long turned a blind eye to smuggling to North Korea but in 2017 started to crack down on it as it shifted stance and began to turn the economic screws on Pyongyang.

The question now is whether Beijing is still turning a selective blind eye. Or is North Korea’s smuggling network, which includes bartering via Russian ports and forging the nationalities and destinations of ships, so well organised that it is beyond being able to be shut down?

The broader concern is that either way Trump will take it as an excuse to move onto his confrontational anti-China trade agenda in 2018. Trump has long argued that foreign countries are taking advantage of America and that America needs to fight back — and that is a message he wants to use to rile up his base support, in 2018 ahead of the US mid-term elections, and again in 2020 when he will be running for re-election as president.

The White House is split on the wisdom of starting a trade war. However, the word from our man in Washington is that the ‘America First’ economic nationalists among Trump’s advisors are currently ascendant and pushing to strike early ahead of the mid-terms while the president himself is itching to slap tariffs first on Chinese electronics and then on steel and aluminium.

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China Cracks Down On Imported Power Kerosene Tax Dodge

One consequence of high oil prices has been a resurgence of the smuggling of oil products such as gasoline, diesel oil and kerosene. 21st Century Business Herald (via Caijing) reports that staff from the Beijing operations of two Swiss-based commodity traders, Kolmar and Glencore, have been investigated in connection with what is said to be China’s largest oil smuggling case in a decade. Li Buhua, a Chinese national in Glencore’s Beijing-based trading team, has been detained by local customs officials, while Dou Shenyuan, manager of Kolmar’s operations in China was also detained. Both men have been released on bail.

Nearly 1 billion yuan ($150 million) of taxes are said to have been evaded in the course of the alleged smuggling of 800,000 tonnes of imported refined oil products, mostly power kerosene, between August and December last year. Power kerosene can be mixed with gas oil to produce a fuel for rural vehicles and generators as an alternative to diesel which is in short supply. The cargoes in question are said to have been imported from Singapore as being for chemical use, a category exempt from fuel consumption tax. Imports of power kerosene surged last year. Reports say the investigation was prompted by complaints from Sinopec, China’s largest oil refiner, following an unusual surge in imports.

One cargo has been acknowledged by Glencore which says it sold 120,000 tons of mixed kerosene and power kerosene to Guangdong Zhenrong Energy ‘free-on-board’ at Singapore, which means its responsibilities ended there. Guangdong Zhenrong Energy took the cargo away in four ships over a period of about two months, Glencore says, adding it doesn’t know why its employee was detained.

Chinese customs officials in Zhuhai, where the cargoes were landed, are said to be involved–at very least they would have had to turn a blind eye to the documentation and any test sampling of the cargoes–so further detentions are likely given the current crackdown on corruption. Nor would we be surprised to hear of more trading companies being connected to this illicit trade, which we are told is also flourishing in Vietnam and the Philippines.

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Dead Smugglers And China’s North Korea Policies

This is unusual. Beijing has accused North Korean border guards of shooting dead three Chinese citizens and wounding a fourth. The incident took place last week near the border town of Dandong, according to the Chinese foreign ministry. The four were reportedly trying to smuggle copper out of North Korea. Beijing has filed a formal complaint with Pyongyang.

There is a flourishing smuggling business in both directions across the border in addition to the legal trade between the two countries (China accounts for four-fifths of North Korea’s trade and North Korea’s half-hidden private markets are full of black-market Chinese goods), but it is unusual for the commerce to be interrupted in this way, and even more so for China to make a public complaint about it. Coming as it does in the wake of the torpedoing of the South Korean corvette the Cheonan in March, and China’s strenuous fence-sitting efforts to reduce tensions on the peninsula while not letting itself be pushed into joining the international condemnation of North Korea for being responsible for the attack, it all seems curiouser still.

This Bystander wonders if just as the strains of a leadership succession are being seen in North Korea, so there has been an outbreak of factional friction in China between the Foreign Ministry and the Party’s International Department, which traditionally has had the final — and harder line — say in policy towards their Korean War era allies in Pyongyang.

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