Tag Archives: sanctions

North Korea’s Double Dilemma For China

IT IS GETTING ugly on the Korean peninsula, and it was not looking all that pretty to begin with.

However exactly powerful a nuclear bomb North Korea tested over the weekend and whatever the white metallic thing was that the country’s leader Kim Jong-un was photographed posing with — and standing far too close to if it was truly a missile nose cone fitting nuclear device —  it is clear that it is too late to stop Pyongyang ‘nuclearising’.

That poses a what-to-do dilemma for US President Donald Trump, who had said that he would not let Pyongyang get this far with its missile programme. It poses an even bigger one for China, which the Western powers, at least, are blaming for not being tough enough on its ally, while from Beijing’s point of view, it is being asked to take all the risk of dealing with Pyongyang while the United States would get most of the benefit.

As this Bystander has noted before, Washington may overestimate Beijing’s sway over Pyongyang. This weekend’s nuclear test marked the third occasion on which North Korea had upstaged President Xi Jinping at a moment when he wanted to project a particular, and strong face of China to the world.

This weekend was meant to be about Xi presenting the BRICS, with China in the vanguard, as the progressive alternative to an increasingly protectionist West. He will not have appreciated Kim hogging the limelight. That Kim feels confident enough to do that to his only ally, again, implies that North Korea is no dutiful vassal state.

That is not to say that Beijing can do nothing more. It can. It remains North Korea’s primary source of oil and could choke that off, just as it has cut off other trade. It has so far resisted the United States’ pressure to impose such a sanction. It fears that doing so could cause a collapse of the regime that would send millions of refugees flooding across the border into northeastern China and, the far bigger concern, trigger a sudden regime collapse in North Korea that would leave US or US-allied troops hard against its border.

Beijing has in the past cut off oil supplies to North Korea on two occasions. Both times Pyongyang returned to the negotiating table in short order, if only for a while.

There are at least two reasons that Beijing will be reluctant to do so again. First, it does not want to be seen at home or abroad to be knuckling under US pressure. Trump has repeatedly lambasted Beijing for not doing more on sanctions (and when it did, then slapped sanctions on some Chinese companies and has subsequently threatened a trade boycott of any country that trades with North Korea, hardly the thank-you that would encourage further co-operation on this front).

Second, it still does not want to cause a sudden shock that would trigger an economic collapse in North Korea. Instead, it will take incremental back-door steps to cut back oil supplies.

There are signs of this already happening. State-owned China National Petroleum Corp. (CNPC) stopped shipping diesel and gasoline to North Korea in May and June. Ostensibly, this was a corporate decision made on the basis of uncertainty over getting paid. However, such as decision would not have been taken without the express consent of the Party committee within CNPC, and that consent, in turn, would not have been given without express consent and more likely direction from higher up.

Last year, China shipped more than 96,000 tonnes of gasoline and nearly 45,000 tonnes of diesel, worth a combined $64 million, to North Korea. Most of it came from CNPC, but this Bystander would hazard that more and more of China’s other energy companies will discover they have misgivings about trading with Pyongyang and slowly but steadily the oil supply will be choked off.

The statement from the foreign ministry condemning the weekend’s bomb test offers further signs of Beijing’s hardening position towards Pyongyang. While it still called for a resolution to the situation through dialogue, its language was far harsher towards North Korea than in the statements that had followed the five previous nuclear tests.

Denuclearising the peninsula is probably less of a concern for Beijing than Washington, though Beijing would be more than happy for North Korea not to have an independent nuclear deterrent, and especially if its absence bought a removal of the THAAD missile defence system from South Korea as well.

Its priority is to have as much stability on the peninsula as there can be. South Korea response to Pyongyang’s nuclear test (live-fire missile exercises), the planned deployment of a US nuclear-powered aircraft carrier in near waters and a Seoul-Washington agreement in principle to increase the 500-kilogramme permissible payload on South Korea missiles will all destabilise the peninsula more than stabilise it, not to mention discomfort Beijing.

In this environment, Beijing has two sets of relationships to manage, one with Pyongyang and the other with Washington. Both have highly unpredictable players on the other side. Beijing’s preferred option is to work through the United Nations to mitigate the volatility and to put the United States on the track of recognising that North Korea’s nuclear ambitions can no longer be contained, only managed.

The UN Security Council met today, and its member countries will be working on a new set of tougher sanctions expected to be presented for a vote at the beginning of next week. There is still a gulf to bridge between the Chinese and US positions. Meanwhile, China will be applying its own economic squeeze on North Korea to get Kim back to any sort of negotiating table before he provokes the United States into taking actions that will trigger the regime chaos that Beijing so fears.

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US Imposes More North Korea Sanctions On Chinese Firms

THE UNITED STATES has given another turn to the financial-sanctions screw it is driving into North Korea. The US Treasury has added six Chinese and Russian individuals and ten organisations with financial ties to Pyongyang’s weapons program to its list of entities banned from conducting business with U.S.-linked companies and individuals.

Most notable among the latest additions is Mingzheng International Trading Ltd, which Washington considers a front company for North Korea’s state-run Foreign Trade Bank, which itself has been subject to American sanctions since 2013. In June, the US Department of Justice filed suit against Mingzheng for laundering money on behalf of blacklisted North Korean entities, seeking to seize $1.9 million of the firm’s funds.

These latest sanctions appear to target coal importers and agencies supplying North Korean labour to foreign countries in its continuing attempt to sever Pyongyang’s supply lines of hard currency needed to fund its nuclear and missile programmes. In the same vein, the US had sanctioned Bank of Dandong, bank, along with Dalian Global Unity Shipping and two Chinese citizens, Sun Wei and Li Hong Ri, in June.

The United States charged that “at least 17%” of the $786m in customer transactions conducted through Bank of Dandong’s  US correspondent accounts from May 2012 to May 2015 involved “companies that have transacted with, or on behalf of, US and UN-sanctioned North Korean entities”.

The bank which is mainly owned by municipal agencies, is small in the order of banks; its assets were only $10.7 billion as of the end of 2016. A bond issuance prospectus last year revealed that the bank a 1% stake in Dandong Xinliu Group, a state-owned company engaged in trade with North Korea.

Unlike the UN sanctions recently announced, which required lengthy negotiations with Beijing, this latest round appears to have been imposed unilaterally by the United States, as evidenced by China’s reaction which was to say the Washington should “immediately correct its mistake”.

For his part, Kim Jong-un has ordered a step-up in the production of warheads and solid-fuel rocket engines for long-range ballistic missiles, taking some of the wind out of the sails of United States officials who have started to suggest that the possibility of a resumption of talks on a negotiated settlement might be appearing on the horizon.

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China Walks The Line On North Korea

THE LIKELY PRICE of China’s support for the tough new sanctions on trade and investment that the United Nations has voted to impose on North Korea is that they do not include oil. That will mitigate the risk of economic collapse in North Korea that Beijing so fears will trigger a tidal wave of refugees into its north-east provinces and the breakdown of internal order in the northern half of the peninsular that could leave US or US-allied troops hard against its border.

Beijing is having to play a difficult game in keeping the Trump administration in Washington from reverting to unilateral military action to stop Pyongyang’s nuclear programme, with all the uncertain consequences that might bring. Our man at the UN sends word that Russia, presumably with China’s support, tried but failed to get the United States to avow military action.

At the same time, Beijing’s erstwhile ally in Pyongyang continues to see the benefits of being a nuclear-armed regime as far outweighing any economic pain it has to endure to get there. Regime survival rather than national well-being is its underlying priority.

In the end, as this Bystander has previously suggested, the rest of the world may have to accept a nuclear-armed North Korea and bring it into the arrangements the nuclear powers use to ensure such weapons are not deployed but remain deterrents.

However, Pyongyang still has a way to go in its nuclear arsenal before it can feels secure with deterrence. It may have an intercontinental ballistic missile that it can lob on the United States, but not yet the capability for that missile to deliver a targeted nuclear strike.

The United States is determined that Pyongyang’s nuclear programme be rolled back, so it does not reach that point. That does not seem something that Pyongyang will accept, as its still inflammatory rhetoric implies. Threats of engulfing the US in “an unimaginable sea of fire” will do little to mollify US President Donald Trump.

China has called on Pyongyang to halt its tests (in exchange for the suspension of large-scale U.S.-South Korean military drills), in a bid to lower the temperature and get the six-party talks going again. Much of the being-the-scenes activity at the ASEAN meeting now underway in Manila and where all the actors including North Korea will be present, will be to that end.

Footnote: The latest UN sanctions ban North Korean exports of coal, iron, iron ore, lead, lead ore and seafood. In November, the Security Council capped the North’s coal exports at $400 million annually. China, the largest buyer, suspended imports in February.

Reuters news agency quotes a U.N. diplomat as saying that the expected value of North Korea’s exports of iron and iron ore in 2017 was $251 million, with $113 million coming from lead and lead ore, and $295 million from seafood.

The latest available full year figures from trade data, for 2015, show North Korea’s exports of minerals and metals at $1.4 billion, accounting for 49.9% of exports. Seafood exports totalled $115 million.

The new sanctions also prohibit countries from hiring additional North Korean labourers working abroad, bans new joint ventures with North Korea and any new investment in current joint ventures.

In 2015, a UN human rights investigator estimated that Pyongyang had sent more than 50,000 people to work abroad, mainly in Russia and China, earning between $1.2 billion and $2.3 billion a year for the government.

Enforcement of the sanctions falls heavily on China, which buys 83% of North Korea’s exports.

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China, Myitsone And The Company It Keeps

There are three partners in the controversial Myitsone Dan project that Myanmar has just suspended. One is China Power Investment Corp., one of the five biggest state-owned power companies, producing 10% of China’s electricity. Its subsidiary, Sinohydro, one of the world’s largest dam contractors and now doing an IPO on the Shanghai exchange, is the primary subcontractor on Myitsone, along with another Chinese state-owned dam builder, China Gezhouba, the main contractor for the Three Gorges Dam and which gets half its business outside China.

The Ministry of Electric Power-1 is Myanmar’s partner along with Asia World Co., part of a politically well-connected Myanmar conglomerate founded in 1992 by Lo Hsing Han, a storied Chinese militia leader from the Golden Triangle who has been described by the U.S. Treasury as “one of the world’s key heroin traffickers” since the 1970s. Asia World is managed by one of Lo’s four sons, Law, also known as Steven Law and Tun Myint Naing, who was denied a visa to visit the U.S. in the mid-1990s because, we understand, of his suspected connections to drug trafficking.

The Asia World group of companies is currently subject to U.S. sanctions imposed by the Bush administration against supporters of the military junta that ran Myanmar before the current military-backed civilian government. Lo and Law, were described as “two key financial operatives of the Burmese regime”. Included in the sanctions were 10 Singapore-based companies owned by Law’s wife, Cecilia Ng, who is Singaporean.

Law, now in his mid-50s, is said to be one of the wealthiest individuals in Myanmar in part on the back of a series of lucrative government contracts Asia World won for the construction of ports, highways and government facilities in the country. The group also has interests in trading, manufacturing, real estate and transport. It has done well out of China’s estimated $8 billion of investments in Myanmar, being involved in the oil and gas pipeline being built to connect southern China with the Indian Ocean, the construction of a deep-water port at Kyauk Phyu, which is also the terminus for the pipeline, and the Tasang hydroelectric dam as well as the one at Myitsone. Law was included in the delegation President Thein Sein led to Beijing in May.

When Xinhua reported on the sanctions imposed by the U.S. in 2008 against Asia World, it made no mention of its founder being an illicit drugs kingpin. There is no credible evidence that the Asia World companies are directly involved in drug trafficking but there can be little doubt that it wouldn’t have got off the ground in the same way without it’s founder’s money and contacts.

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