Chinese city launches trade program with North Korea

A city in northeastern China has launched a trial program, allowing exporters to use the yuan to settle transactions with its isolated neighbor North Korea, local authorities said.

The scheme in Dandong will “reduce exchange rate risks and the costs of doing business” and allow registered exporters to claim tax rebates, the city government said in a statement on its Web site Wednesday.

Beijing said in June that it would expand a trial program for cross-border yuan trade settlements to 20 Chinese provinces, including Liaoning, where Dandong is located. The program covers all foreign countries, the statement said.

The move appears intended to encourage legal trade and curb smuggling between the two countries. It also comes after North Korean border guards in June fatally shot three Chinese citizens, all of whom lived in Dandong. The three were suspected of crossing the border to engage in illegal trade, the official Xinhua News Agency said.

China is North Korea’s sole major ally and its main supplier of energy and food. The two sides have signed a series of agreements on cooperation in economic, technological and other fields.

The country’s trade with North Korea was $2.7 billion last year and totaled $612.7 million in the first three months of this year, according to data from Chinese customs.

In recent years, the North Korean regime has tried to reassert state control over the economy by restricting private markets, which sprang up after the state food distribution system collapsed in the famine years of the 1990s.

A currency revaluation last November, designed to flush out entrepreneurs’ savings, backfired disastrously. It fueled food shortages as market trading dried up and sparked rare outbreaks of unrest.

AFP