Over the weekend there was news of a shift in the international stance regarding North Korea’s mad dictator and his increasingly provocative demonstrations of the isolated nation’s power. In a process which actually began in December, China took the nearly unprecedented step of having their banks freeze the assets of North Korean depositors and halt all cash transfers to Kim Jong-un’s realm. Given their status as Pyongyang’s only effective ally, this signals a serious strain in relations and a sign that North Korea may have finally gone too far. (Yahoo News)
Chinese banks including a branch of China’s biggest bank Industrial and Commercial Bank of China (ICBC) <601398.SS> have frozen accounts belonging to North Koreans, a South Korean newspaper reported on Monday.
Citing phone conversations with an unnamed employee of ICBC’s office in the northeastern Chinese border city of Dandong, the Dong-A Ilbo reported that since late December it had suspended all deposits and transfers of foreign currencies in and out of accounts with North Korean names.
“(The bank) had never told me why it was taking such measures, but it seems that they are related with the strained relations between North Korea and China,” the ICBC employee told the Dong-A Ilbo.
The significance of this move is difficult to parse out, particularly because we’re talking about two of the most secretive nations on the planet, with state controlled media and very little in the way of transparency. China never seems to be terribly upset about Kim’s antics when they’re sticking a finger in the eye of the west, but what they clearly desire more than anything else is stability on their border. Having a friendly state residing there is a plus, but that evaporates if the entire region breaks down into open warfare.
China also has the only real leverage over the North Koreans. International sanctions don’t stop Kim’s regime from going off the rails and the prospect of a renewed shooting war isn’t in anyone’s interests unless it simply can’t be avoided. But the one area where China really holds the leash is their economic ties to the regime. The Council on Foreign Relations reports that even during periods of stressed relationships, China accounts for nearly all of North Korea’s trade and support.
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. In September 2015, the two countries opened a bulk cargo and container shipping route to boost North Korea’s export of coal to China and China established a high-speed rail route between the Chinese border city of Dandong and Shenyang, the provincial capital of China’s northeastern Liaoning province. In October 2015, the Guomenwan border trade zone opened in Dandong with the intention of boosting bilateral economic linkages, much like the Rason economic zone and the Sinujiu special administrative zone established in North Korea in the early 1990s and 2002, respectively.
To put that in perspective, here’s a graph of how the China – North Korea trade flow has grown just since 2000.
Zhiqun Zhu at The Diplomat has been studying the situation extensively and concludes that China now recognizes that they have essentially failed in their role as a responsible power in the region. The two biggest losers in any collapse of the North Korean situation are the United States and China, with the latter inviting tremendous destabilization on their own doorstep if Kim’s nuclear weapons program grows further out of control. That doesn’t mean that Beijing is on the verge of working toward the overthrow of the North Korean government and putting Seoul in charge of things (which would be an almost equally undesirable situation for them) but they do need to establish some checks on Kim’s madness.
Is shutting off the cash flow the first step on that path? Possibly, but it’s unclear if even that would deter Kim’s ambitions. Their people are already starving to death in large numbers, with millions more rotting away in prison camps. Until the sanctions and hard times begin to hit the leadership in Pyongyang personally the madman may simply stick to his guns.