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Trading Lessons

Here’s Why China’s Supposed Influence Over North Korea Is A Bluff

Politics / North Korea Jun 22, 2017 - 07:10 PM GMT

By: John_Mauldin

Politics

By Xander Snyder : The US is pushing China deeper into a corner over the crisis with North Korea. It wants the Chinese to persuade the North Koreans to give up their nuclear weapons and ballistic missile programs.

The popular perception is that Beijing has substantial leverage over Pyongyang, partly because China is North Korea’s largest trading partner. This impression also stems from China’s proposals to mediate trade concessions between North Korea and the United States.


The US has recently urged China to continue to use its leverage over North Korea and said there will be consequences if China does not. However, on June 20, Trump tweeted that China’s efforts to influence North Korea appeared to have failed.

Later that night, US satellites reportedly detected modifications to an underground North Korean test site that may be preparing for the country’s sixth nuclear test.

This raises some questions: Does China have the power to deter the North Koreans? and how much influence does Beijing actually have over Pyongyang?

Steps Taken

China has already taken action to apply pressure on North Korea. In February, Beijing said it halted imports of North Korean coal, according to UN sanctions. These sanctions limit North Korean coal exports—which were worth $1 billion in 2014—to $400 million for the year.

Earlier this month, after North Korea did another round of missile tests, the UN expanded sanctions by freezing the assets of four North Korean companies and 14 members of the regime and imposing a travel ban on the same individuals.

China supported this motion. China has also taken action with regard to migrant laborers from North Korea. In March 2016, the Chinese government informally told Chinese companies to stop hiring North Korean workers.

Remittances from North Koreans living abroad are a vital source of hard currency for the regime, up to $2.3 billion annually according to some estimates.

What Can China Do That It Hasn’t Yet Done?

The answer is… not a whole lot.

It could impose greater financial sanctions. But it seems unlikely that financial sanctions could deter North Korea from pursuing a program that it considers central to its security interests. Especially given that current pressure has not done so already.

That leaves Chinese crude oil exports as Beijing’s strongest remaining point of leverage. North Korea generates most of its electricity from coal, but its military would depend on crude oil if a conflict were to break out.

Without it, Pyongyang’s ability to wage war would be significantly reduced.

China no longer discloses how much crude oil it exports to North Korea. However, some estimate that it could account for 500,000 tons per year, or about 3.7 million barrels.

North Korea is believed to have only minimal capacity to produce crude oil. Its imports from Russia are not substantial either. That means it’s a real threat to North Korea and gives China some strong leverage.

But China may decide that it’s not in its interest to cut oil supplies to North Korea. If this move doesn’t stop the North Koreans and war does break out, China doesn’t want to be on Pyongyang’s list of enemies.

The US Will Push China More Going Forward

Given these limited options, there are two reasons the US would continue to demand further action from China.

First, the US will explore all options within a certain window of time before resorting to force. In the lead-up to the Iraq War in 2003, the international community tried to mediate a solution, and the US declined the offer.

This time, it will seek mediation from anyone willing to offer—even Dennis Rodman, who visited North Korea just last week.

If it decides that a strike is necessary, the US wants to be able to point out that it tried every diplomatic solution, including using China as a mediator, before resorting to force.

And by pushing China to act as an intermediary, it can argue that it was China, in fact, that failed to prevent the war.

The second reason the US will demand further action from China is that China has long used its supposed influence over North Korea as a way to gain concessions from the US.

The US is now calling China’s bluff. If China can’t sway the North Koreans, then it will no longer be able to use them as a bargaining chip in future negotiations with the US.

Statements by officials are often just smoke and mirrors.

In this case, the US’s demands for China show that it’s time to act. Public posturing gives the US real leverage in its private discussions with Beijing. But China’s window of opportunity is closing, and if Trump’s tweet is any indication, it may have already closed.

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John Mauldin Archive

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