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Why China won't isolate North Korea

President Donald Trump threatened North Korea with “fire and fury” over its nuclear threat, but China, which sells billions in fuel and food to North Korea, is far better positioned to weaken its volatile neighbor without firing a single missile.

Even as a global nuclear crisis heats up, there’s scant evidence China is willing to impose the major economic measures necessary to cripple Pyongyang — despite Trump’s insistence Thursday that “it do a lot more.”

“China is not willing to put the kind of regime threat pressure that we think is necessary because they don’t want to cause a Korean collapse,” said Joseph DeThomas, a former U.S. diplomat who specialized in sanctions and nonproliferation issues.

The prospect of millions of refugees pouring into China, economic instability in its northern provinces and a possible war on the Korean peninsula are more pressing realities for Beijing than North Korea’s development of nuclear weapons.

China agreed this week to a United Nations resolution prohibiting the purchase of some of North Korea’s major exports — coal, iron ore, seafood and other items. Yet the legitimate and illicit trade that flows back and forth across the Yalu River every day is a stark reminder that China’s view of the problem differs greatly from the U.S.

“I think they’re genuinely unhappy with the North Koreans, genuinely want to penalize them and are prepared to join with the U.S. in doing that — but there’s a limit to how far they want to go,” said Robert Einhorn, a senior fellow at the Brookings Institution who previously served as special adviser for nonproliferation and arms control at the State Department.

Trump showed impatience with such limits, however, in remarks from his golf club in Bedminster, New Jersey.

“We lose hundreds of billions of dollars a year on trade with China,” he said. “They know how I feel. It’s not going to continue like that. But if China helps us, I feel a lot differently toward trade, a lot differently toward trade.”

The president has threatened tariffs on Chinese steel and aluminum imports and has come close to ordering an investigation into Beijing’s intellectual property rights violations that could lead to more trade restrictions. However, the latest trade action alleged violations of U.S. intellectual property rights and forced technology transfers against China’s was put off as the U.S. recently sought China’s support for sanctions at the U.N.

But Beijing would be hard pressed to curtail its exports of oil, vehicles, electronics and food that serve to prop up the North Korean economy, and by extension, the Kim Jong Un regime and its nuclear aspirations.

“China is sort of there everywhere economically for North Korea,” said DeThomas. “They’re on the one hand the key and the other hand the lock.”

Although North Korea has become an increasingly ostracized nation over the years, China’s support for the regime through trade remains strong. In the second quarter of 2017, China exported $934 million worth of goods, compared to $721 million in the first quarter of the year. Exports are also up 17 percent from the same period last year, according to Chinese data collected by Panjiva, a trade analysis firm.

It’s unclear what types of goods account for the increase in trade flows, because China has redacted product-specific data since January, said Chris Rogers, a research analyst at Panjiva.

Chinese Foreign Minister Wang Yi said earlier this week that China would “comprehensively and strictly” enforce the U.N. resolution but in a statement recognized his country’s “traditional economic bond” with North Korea.

Wang made the point of “affirming” Secretary of State Rex Tillerson’s statement from earlier this month in which the top U.S. diplomat said American policy did not seek regime change, the regime’s collapse, an accelerated reunification of the Korean peninsula or an American invasion.

China’s recent agreement at the U.N. to cut off certain imports from North Korea may further squelch the flow of hard currency going into the country, but Pyongyang will likely continue to earn revenue from legitimate trade with China as well as its illicit activities.

“If you want to go down the road of economic pressure, China is the card you have to play because China has 90 percent of their trade; it’s their sole source of oil, basically all their illicit trade goes through China,” said DeThomas, who now teaches at Penn State University.

For example, China imported about $640 million worth of North Korean apparel in 2016, which is second only to coal in terms of what it imports from its neighbor. The latest U.N. sanctions don’t place restrictions on exports of apparel and textiles. Chinese companies also supported North Korea’s apparel industry with exports of $175 million of fabric across the border, according to data culled by Panjiva.

North Korea also takes in foreign money via the wages its laborers earn in foreign countries. A large proportion of the estimated 100,000 North Koreans working abroad are employed in China. Over all, wages remitted from North Korean workers in other countries add a further $300 million to $600 million to North Korea’s coffers, said Troy Stangarone, senior director at the Korea Economic Institute of America. A State Department spokeswoman said today it was pressuring other countries to reduce the number of North Korean guest workers.

North Korea also earns revenue through illicit channels such as online gambling operations and illegal arms sales to the Syrian government — each of which brings in $1 billion income, Stangarone said.

“There’s a significant amount of revenue sources probably still out there beyond just sort of what we’re looking at in, say, the licit goods side that’s largely with China,” he said.

Such trade gives the North Korean regime the hard currency it needs to sustain it nuclear activities, even after the recent U.N. sanctions promise to cut off about one-third of the $3 billion in revenue it earns in legitimate goods exports.

China was successful in watering down the U.N. resolution, Einhorn suggested, by pushing back on U.S. demands to cut their oil shipments.

He said China also likely dissented from proposals to expel North Korean workers altogether and to abandon any existing joint business ventures. Instead, the resolution only goes as far as prohibiting countries from hiring additional North Korean nationals and entering into new or expanded business joint ventures.

China agreed to cut off imports of North Korean coal, iron, iron ore, lead, lead ore and seafood, but it was already tapering purchases on those items based on a U.N. resolution it agreed to at the end of last November. That action capped the amount of North Korean coal China and other U.N. members could buy but didn’t eliminate imports altogether.

Since the previous resolution went into effect on Nov. 30 and through the end of January, China imported about $218 million worth of North Korean coal, according to a South Korean energy analyst, who requested not to be named because of classified work he does for the South Korean government.

As of Feb. 19, China had already halted all shipments of coal from North Korea, the analyst said.

Congress could further squeeze China by imposing so-called secondary sanctions to cut off the nation’s financial institutions from the U.S. financial system.

Sens. Chris Van Hollen (D-Md.) and Pat Toomey (R-Pa.) introduced legislation (S. 1591) in July to toughen efforts to sanction banks that allow North Korea to continue sanctioned business activities.

But unilateral action to hit China may compromise any efforts to further sanction North Korea through international cooperation.

“We’ve begun to go after these [Chinese] entities, but there’s always a reluctance there,” said Einhorn. “On the one hand, you have to threaten China that we’re going to be serious about going after their entities. On the other hand, we need Chinese cooperation. We needed the Chinese cooperation to get that resolution adopted. And even though it’s not as strong a resolution as the U.S. had hoped for, it’s still a pretty strong step forward.”

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