Exclusive: U.S. warns China it will target firms for illicit North Korea business

REUTERS - The United States has warned China it will blacklist Chinese companies and banks that do illicit business with North Korea if Beijing fails to enforce U.N.

sanctions against Pyongyang, according to senior State Department officials.

The tougher U.S. approach reflects growing impatience with China and a view that it has not strictly enforced existing sanctions to help curb Pyongyang's nuclear program, which a U.S. policy of both sanctions and diplomacy has failed to dent.

U.S. Deputy Secretary of State Antony Blinken gave the message to Chinese officials in meetings in Beijing in October after North Korea conducted its fifth and largest nuclear test, the officials said.

U.S. National Security Adviser Susan Rice and Secretary of State John Kerry stressed the importance of choking off financial flows to Pyongyang during a meeting with Chinese State Councilor Yang Jiechi in New York on Nov. 1.

In response to the U.S. warning, Chinese officials said they believe pressure alone on North Korea will not work, and that they oppose any U.S. action that would hurt Chinese companies, officials said.

U.S. sanctions on Chinese businesses and banks would likely exacerbate tense relations between the two major powers, who disagree over China's claims in the South China Sea and the U.S. deployment of an anti-missile battery to South Korea.

With President Barack Obama's administration in its final weeks, officials said any major steps would likely be left to Donald Trump's administration, which takes over in January.

Though a frequent critic of China, it is unclear whether Trump will pursue the sanctions.

The U.N. Security Council, which includes China, unanimously voted to impose new, tougher sanctions on North Korea on Wednesday, to cut its annual export revenue by a quarter in response to the September nuclear test. North Korea has rejected the resolution.

"We do expect that China will implement the resolution, but if we detect that Chinese companies in violation of the resolution are conducting business, aiding and abetting North Korea proscribed entities, we will tell the Chinese what we know, with the expectation that the Chinese will act on it," Danny Russel, the U.S. Assistant Secretary of State for East Asian and Pacific Affairs, told Reuters.

"If the Chinese decline or fail to act, then we've made absolutely clear, not only that we reserve the right to take action on a national basis under our authorities but that we will have no choice but to do so," he said.

One option being considered is to impose sanctions on Chinese steel companies that make use of cheap North Korean coal, the officials said. The measures could also target North Koreans who work through Chinese banks.

SUPPORT FOR UNILATERAL SANCTIONS

The U.S. Treasury Department on Friday blacklisted individuals and companies it said were helping the North Korean government or its nuclear and weapons programs, but no Chinese firms were on the list. South Korea and Japan also said they would impose new unilateral sanctions on North Korea.

Support within Obama's administration for unilateral sanctions against North Korea has increased gradually over the past six to eight months as concerns increased over Pyongyang's growing nuclear capabilities, one official told Reuters on condition of anonymity.

"If we are serious about leaning on the North, we have to go after the economy generally," the official said. "As it turns out, the Chinese tolerance for North Korea misbehavior is higher than ours and that gap is not sustainable."

Trump, whose real estate business has had dealings with the Bank of China, has urged Beijing to do more to rein in its neighbor and lambasted China mostly for its trade practices on the campaign trail.

He told Reuters in May he was willing to talk to North Korean leader Kim Jong Un to try to stop Pyongyang's nuclear program.

Neither sanctions, imposed by Washington since 1950, nor the so-called six-party talks with Pyongyang to suspend its nuclear program in return for diplomatic rewards and energy assistance, have stopped North Korea from testing nuclear devices.  

While Beijing has voted to impose sanctions on North Korea and condemned the nuclear tests, Chinese officials worry that tighter sanctions could lead to the collapse of the government and send tens of millions of refugees across its borders. Pyongyang's collapse would also remove a buffer between China and South Korea, home to 28,500 U.S. troops.

In fact, China this year has increased its imports of North Korean coal, one of the North's only sources of hard currency and its largest single export item. Beijing is by far Pyongyang's most important trading partner, and has been its economic lifeline, though there have been signs in recent weeks that it is doing more to squeeze commerce with the isolated country.

Sanctions imposed by the United States banish companies and individuals from the international banking system, making it difficult for them to find financing or partners on foreign deals.

The United States used so-called secondary sanctions on foreign firms that deal with banned entities to pressure Iran, and the measures were credited by sanctions experts as key to inducing Tehran to compromise on its nuclear program. Such sanctions could serve as a guidepost for unilateral actions against Pyongyang.

China opposes unilateral sanctions on North Korea, and is especially sensitive to U.S. measures against China-based firms. The Chinese foreign ministry spokesman said on Thursday that the new U.N. sanctions are not intended to harm "normal" trade with North Korea, and that China has always enforced U.N. resolutions responsibly.

REUTERS

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