China breaks N. Korea sanctions it says won’t work because it’s afraid they’ll work

In yesterday’s post, I linked to reports suggesting that China’s failure to agree on the terms of a new U.N. sanctions resolution responding to North Korea’s latest nuclear test may be motivated by a desire to wait out the end of President Obama’s administration. This theory would only make sense if China figures it can get better terms from President Trump next year, but my post pointed to evidence of the opposite of this — that what we know so far about the key people advising Trump is that some want to increase sanctions against His Supreme Corpulency and his Chinese backers, and others would prefer to terminate his command with extreme prejudice. 

First, I’ll offer an important caveat: it can be treacherous trying to divine President Elect Trump’s policy views by listening to his advisors.

With that caveat, then, if the present pattern of selections and nominations continues, differences between the U.S. and China over North Korea may have to get worse under a Trump administration before they can get better. Men like John Bolton, Mitt Romney, James Mattis, and Michael Flynn probably believe that President Obama’s deferential approach to China, rather than improving relations, likely contributed to China’s (correct) calculation that it could get away with grabbing vast areas of the South China Sea, bullying its neighbors, undermining North Korea sanctions, and doing other things to escalate regional tensions. They may see more pressure on China as a prerequisite to defanging North Korea. They may dismiss China’s explanations of its North Korea policy as mendacious and double-dealing, which is only natural, given that China actually has at least six of them — all of them risible, mutually inconsistent, or both.

First, there is China’s official diplomatic position, expressed in its vote for no less than six resolutions at the Security Council. Implicit in these votes are two ideas — that China wants a nuclear-free Korean peninsula, and that economic pressure is an important part of a policy for achieving that end.

Second, there is the reality of China’s material and financial support for the North Korean regime, often in violation of U.N. sanctions, including the sale of proliferation-sensitive technology (missile trucks, for example). China has spent the last decade violating the same sanctions it voted for because trade and engagement and all that. As I’ve pointed out more than once, those violations are much too extensive and long-standing to be anything less than willful state policy.

Third, there is the propaganda line advanced by China’s scholars and acolytes that sanctions — that is, the ones China has spent the last decade violating — never work. (Except, of course, when they do, but more on that in a moment.)

Fourth, when called on its years of flagrant violations, China says it’s afraid that sanctions will work so well they’ll destabilize the regime in Pyongyang. Here’s a typical example of something you’ve read at least a hundred times:

China fears that stricter measures against North Korea, such as cutting off provisions of oil and food, would lead to a humanitarian disaster with millions of refugees flocking across the border. The collapse of Kim’s government could also put soldiers from South Korea and its U.S. ally right on China’s border, a scenario Beijing’s leaders want to avoid. [Bloomberg]

A premise of that view is that China would rather have a nuclear-armed, genocidal North Korea along its border than a democratic one friendly to the United States, which it views with intense hostility. Usually, that premise goes unspoken, but not always.

“The United States cannot rely on China for North Korea,” said Shi Yinhong, a professor of international relations at Renmin University in Beijing. “China is closer to North Korea than the United States.”

China sees living with a Communist-ruled nuclear-armed state on its border as preferable to the chaos of its collapse, Mr. Shi said. The Chinese leadership is confident that North Korea will not turn its weapons on China, and that China can control its neighbor by providing enough oil to keep its economy afloat.

The alternative is a strategic nightmare for Beijing: a collapsed North Korean regime, millions of refugees piling into China and a unified Korean Peninsula under an American defense treaty. [N.Y. Times]

A fifth argument is that Beijing has little real influence over Pyongyang, which is spurious nonsense: 

China provides North Korea with most of its food and energy supplies and accounts for more than 70 percent of North Korea’s total trade volume (PDF). “China is currently North Korea’s only economic backer of any importance,” writes Nicholas Eberstadt, senior fellow at the American Enterprise Institute. [Council on Foreign Relations]

That argument looks especially spurious this year, as China uses trade as a blunt instrument against South Korea over its deployment of the THAAD missile defense system, and against the United States itself. China has made more threats against the U.S. and South Korea over missile defense this year than it has against North Korea in a decade over the missiles and nukes that gave rise to the threat itself.

Finally, China has a last line of defense: We are, too, enforcing sanctions!  If it comes under sufficient diplomatic pressure, for a few weeks or months, Beijing will encourage a few banks and companies to freeze a few accounts, arrest a few North Korean money launderers, or inspect some cargo entering or leaving North Korea. This compliance typically lasts for a few weeks or months until the trade returns to business as usual.

In 2013, and again this year, Chinese banks seemed (for a few weeks) to have frozen North Korean accounts right after a sanctions resolution passed. But by September, the Justice Department’s indictment and forfeiture action against Dandong Hongxiang proved that Chinese banks had gone right back to servicing His Porcine Majesty’s slush funds. At first blush, a new Washington Post report by Anna Fifield, indicating that Sino-North Korean trade dropped off suddenly in recent weeks, looks like the latest Chinese head-fake in response to pressure from the outgoing Obama administration.

[T]rading has become significantly harder in recent weeks, a dozen people involved in doing business with North Korea said in interviews, the result of a double-pronged attempt by Beijing to communicate its anger with the regime in Pyongyang. 

“Everything’s become tougher since September,” a Korean Chinese factory owner who employs North Korean workers here told The Washington Post. “This crackdown is because of the missile and nuclear tests, and it doesn’t look like it’s going to blow over.” [Washington Post, Anna Fifield]

This could be a head-fake, but it could also mean something entirely different and much more significant — Chinese companies may be showing their fear of U.S. secondary sanctions. Specifically, Fifield sees some evidence that the Dandong Hongxiang action had an in-terrorem effect on other Chinese trading companies. Indeed, she speculates that this action had a greater impact than the passage of U.N. sanctions:

But an equal or even bigger influence is the surprise detention of a prominent Dandong business executive, a member of the Communist Party no less, who stands accused of helping North Korea dodge sanctions and obtain materials for its weapons program.

“When business people hear this kind of story, of course we feel very constrained and it makes us very cautious,” a South Korean businessman trading in this area said on condition of anonymity. The atmosphere is so tense that none of the businessmen interviewed were willing to be publicly identified, even as they insisted everything was aboveboard.

Business is down, but no one knows how long that will last. And even now there are plenty of ambiguous signs: The annual trade fair here was canceled- yet coal exports from North Korea are breaking records. China holds the lever, and its intentions can only be speculated upon. [Washington Post, Anna Fifield]

This highlights a point that sanctions skeptics tend to miss or gloss over — that the goal of secondary sanctions isn’t so much to change the attitude of the Chinese government (probably a fool’s errand) but to threaten the divergent interests of the Chinese banks and business that are the instruments of Beijing’s sanctions-busting. Chinese banks and businesses are content to break sanctions if it’s profitable to do so, but not at the cost of their assets or their access to international markets, trade, or finance. 

Fifield treats these reports with justifiable skepticism, noting that the Chinese government’s interest in maintaining North Korea’s status quo (however horrific for North Koreans) probably hasn’t changed. Indeed, I see little clear evidence in Fifield’s report that this drop-off is the result of Chinese government action. What’s interesting and noteworthy is the timing of this change (in September). On September 9th, North Korea conducted its fifth nuclear test, which brought more diplomatic pressure on the Chinese government to enforce sanctions. The Dandong Hongxiang actions were announced on September 26th. One could argue that either event was a greater influence than the other.

Fifield and Andrei Lankov, whom Fifield quotes, then proceed to say that years of sanctions have failed, even as Fifield sees evidence that the Dandong Hongxiang action might have worked. But this is a false distinction. It misses the key point that U.S. authorities acted against Dandong Hongxiang for laundering money for Korea Kwangsong Bank, which was designated by both the U.N. and the U.S. for proliferation financing in violation of U.N. sanctions. This was an example of a Member State using its national laws to enforce U.N. sanctions, which is the only way U.N. sanctions can be enforced. Dandong Hongxiang is precisely what it looks like when someone bothers to enforce U.N. sanctions for once.

It’s difficult to believe that a single enforcement action — particularly one that failed to act against the Chinese banks behind Dandong Hongxiang’s violations — will be enough to put significant and lasting pressure on Pyongyang. Chinese businesses may be waiting to see how the new Trump administration responds. Or, we may be seeing the Chinese government’s latest head-fake. But for now, the report bears watching, and may eventually validate the effectiveness of secondary sanctions.