China Holds Back in Latest North Korea Sanctions

By Chun Han Wong Features Dow Jones Newswires

China's endorsement of new international sanctions against North Korea came with a heavy dose of caution as Beijing tries to stall its neighbor's pursuit of nuclear arms without causing its collapse.

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The United Nations Security Council agreed late Monday to curb key aspects of North Korean trade and income -- including oil imports, textile exports and revenue from overseas workers -- without imposing blanket bans that could choke off Pyongyang's economic lifelines.

The U.S. initially asked for a complete oil embargo and asset and travel freezes targeting North Korean leader Kim Jong Un, but eased those demands, diplomats said, to win support from China and Russia, which each wield veto power on the Security Council.

Watering down the sanctions helps China retain leverage over Pyongyang and avoid the collapse of a fellow socialist regime that would drive refugees across its border and bring U.S. troops closer.

"China wants to reserve some tools in its kitbox, to be used if North Korea carries out more provocative acts," such as another nuclear test, said Cheng Xiaohe, an associate professor at Renmin University in Beijing.

In agreeing to cap Pyongyang's oil purchases, "China is offering some breathing space to North Korea, while signaling that harsher measures -- like a total ban on oil imports -- would follow should they conduct more nuclear tests," Mr. Cheng said.

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Monday's resolution bans North Korea from importing natural gas, slashes its oil imports by 30% and caps its annual purchases of refined petroleum products such as gasoline and diesel at roughly 2 million barrels and crude oil at about 4 million barrels.

A proposed ban on North Korean expatriate workers, who are estimated to number 93,000 world-wide and contribute hundreds of millions of dollars in annual revenue to Pyongyang, was amended to allow countries to employ North Koreans if deemed necessary for humanitarian reasons -- a change that Chinese experts said was likely requested by Beijing.

The resolution also bans all textile trade with North Korea, which U.S. officials say earned $760 million for Pyongyang in 2016 and was the last major economic sector that hadn't yet been targeted by U.N. sanctions.

"China is definitely leaving itself some leeway to show North Korea that it could go farther, but each additional sanctions resolution has a diminishing marginal return in terms of the signal sent," said Justin Hastings, an associate professor at the University of Sydney and an expert on Pyongyang's trade networks. "Without a strategic change in policy, China is likely to asymptotically approach cutting off North Korea entirely without ever actually getting there."

China in February suspended North Korean coal imports for the rest of this year to enforce U.N. sanctions, and then in August said it would comply with additional U.N. measures by making the coal-import suspension permanent, while also banning inflows of North Korean iron and seafood.

These curbs made Chinese textile purchases a more important revenue source for Pyongyang. The value of Chinese textile imports from North Korea totaled $328.7 million from January to July, surpassing the $226.1 million North Korea earned from selling coal and other mineral fuel products to China over the same period, according to Chinese customs data.

China doesn't publish data on North Korean workers in the country. In 2012, the North Korea Strategy Center, a Seoul-based nonprofit, estimated that about 7,000 to 8,000 North Koreans were working in Chinese restaurants and construction sites, while 40,000 more expected to take jobs in northeastern Chinese cities over the subsequent year or so.

The impact of the latest bans will be muted by gaps in sanctions enforcement, said Benjamin Silberstein, an associate scholar at the Foreign Policy Research Institute, a Pennsylvania-based think tank.

"Much of North Korea's oil imports already go unrecorded and happen through sources that lay outside of official trading frameworks," Mr. Silberstein said. Furthermore, "North Korean society is already adapted to a reality where oil and fuel is very scarce," he said.

The ban on textile exports can be circumvented by an already widespread practice of labeling the goods as Chinese-made, while curbs on North Korean overseas labor can be skirted under humanitarian exemptions, according to Mr. Silberstein.

"The notion that sanctions can coerce North Korea into giving up nuclear weapons is a misguided one," said Zhang Liangui, a North Korea expert at the elite Central Party School in Beijing. "If the latest measures prove ineffective, the chances of the U.S. taking unilateral actions to counter North Korea will increase."

China's Foreign Ministry spokesman Geng Shuang on Tuesday said Beijing strictly enforces all U.N. resolutions, and reiterated calls for Washington and Seoul to avoid "actions that will further complicate the situation," a phrase China has used to characterize U.S.-South Korea joint military drills.

On Monday, China's central bank issued a directive instructing state-owned and commercial lenders to take steps to comply with all U.N. resolutions, including freezing accounts and blocking transactions linked to clients under sanction.

A number of Chinese state-owned banks have been blocking North Koreans from opening new accounts this year, according to bank employees based in cities near the North Korean border, who declined to say when the measures started.

A China Construction Bank representative said North Koreans have been blocked from withdrawing money, while an employee at Agricultural Bank of China said existing North Korean-owned accounts have been frozen.

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Xiao Xiao

and Liyan Qi contributed to this article.

Write to Chun Han Wong at chunhan.wong@wsj.com

(END) Dow Jones Newswires

September 12, 2017 11:04 ET (15:04 GMT)