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Sourced & Compiled by Arvind Sinha

China is North Korea’s biggest trade partner and arguably has the mostleverage on Kim Jong-un’s regime.

But while Beijing appears willing tocondemn its neighbor’s nuclear developments, analysts say its cautiouspolicies remain focused on stability.

Introduction
China is North Korea’s most important trading partner and main source of food and energy. It has helped sustain Kim Jong-un’s regime, and has historically opposed harsh international sanctions on North Korea in the hope of avoiding regime collapse and a refugee influx across their 870-mile border. Pyongyang’s nuclear tests and ongoing missile launches have complicated its relationship with Beijing, which has continued to advocate for the resumption of the Six Party Talks,the multilateral framework aimed at denuclearizing North Korea. A purge of top North Korean officials since its young leader came to power and the assassination of Kim Jong-nam, Kim Jong-un’s exiled half- brother, in Malaysia also spurred concern from China about the stability and direction of North Korean leadership. Yet China’s policies have done little to deter its neighbor’s nuclear ambitions.

Alliance understress
China’s support for North Korea dates back to the Korean War (1950–1953), when its troops flooded the Korean Peninsula to aid its northern ally. Since the war, China has lent political and economic backing to North Korea’s leaders: Kim Il-sung (estimated 1948–1994), Kim Jong-il (roughly 1994–2011), and Kim Jong-un (2011–). But strains in the relationship began to surface when Pyongyang tested a nuclear weapon in October 2006 and Beijing supported UN Security Council Resolution 1718, which imposed sanctions on Pyongyang. With this resolution and subsequent ones, Beijing signaled a shift in tone from diplomacy to punishment. After North Korea’s latest missile launch in November 2017, China expressed grave concern and opposition, calling on North Korea to cease actions that have increased tensions on the Korean peninsula.

China’s punitive steps have been somewhat restrained though. For example, China backed UN Resolution 2375 in September 2017 after some of the measures in a draft version were dropped, including an oil embargo and the authorization to use force when ships do not comply with mandated inspections. Western officials and experts doubt how committed China is to implementing even limited trade restrictions.

Still, Beijing continues to have sizeable economic ties with Pyongyang. Bilateral trade increased tenfold between 2000 and 2015, peaking in 2014 at $6.86 billion, according to figures from the Seoul-based Korea Trade-Investment Promotion Agency. With the advent of tougher sanctions, trade growth has dampened, but Pyongyang is still dependent on Beijing for economic activity.

Yet Beijing seems more inclined to uphold some of the international sanctions against Pyongyang and increasingly poised to take some limited measures to squeeze its neighbor economically. For example, China’s commerce ministry temporarily suspended coal imports from North Korea in February 2017. State-owned oil giant China National Petroleum Corporation suspended fuel sales to North Korea in June 2017, citing concerns that North Korea would fail to pay the company. In September 2017, media reports cited efforts by Chinese banks, including China Construction Bank, Bank of China, and the Agricultural Bank of China, to restrict the financial activities of North Korean individuals and businesses.

Aid and Trade for Pyongyang
In recent years, despite Beijing’s displeasure at Kim Jong-un’s unwavering nuclear ambition, connectivity between China and North Korea has grown. China provides North Korea with most of its food and energy supplies and accounts for more than 90 percent of North Korea’s total trade volume. In the first three quarters of 2017, Chinese imports from North Korea actually fell by 16.7 percent, though exports were up by 20.9 percent. Despite announced trade restrictions in textiles, seafood, and oil products, there are reports of North Korean businesses still in operation in China.

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. Dandong is a hub for trade, investment, and tourism for the two neighbors—exchanges with North Korea made up 40 percent of the city’s total trade in 2015 and 70 percent of trade in and out of North Korea was conducted via Dandong and Sinujiu in 2016. However, a new $350 million bridge over the Yalu River to connect the two cities, intended to open in 2014, remains incomplete across the North Korean border, a symbol of cooled relations between Beijing and Pyongyang. Still, North Korea’s dependence on China continues to grow. Moreover, established informal trade along the China-North Korea border in items such as fuel, seafood, silkworms, and cell phones signals that despite stricter sanctions, smugglers continue to operate.

Beijing also provides aid directly to Pyongyang, primarily in food and energy assistance. China, Japan, South Korea, and the United States have provided more than 75 percent of food aid to North Korea since 1995, but donations from all countries except for China have shrunk significantly since the collapse of the Six Party Talks in 2009. North Korea, whose famine in the 1990s killed between eight hundred thousand and 2.4 million people, has repeatedly faced extensive droughts and severe flooding, which seriously damage harvests, threatening the food supply. UN agencies estimate that up to 70 percent of the population, or eighteen million people, is undernourished and food insecure. There is also concern about the distribution of aid in North Korea, particularly since China has no system to monitor shipments.

China’s Priorities
China has regarded stability on the Korean peninsula as its primary interest. Its support for North Korea ensures a buffer between China and the democratic South, which is home to around twenty-nine thousand U.S. troops and marines. While the Chinese certainly would prefer that North Korea not have nuclear weapons, their greatest fear is regime collapse.

The specter of hundreds of thousands of North Korean refugees flooding into China has been a worry for Beijing. Instability generated on the peninsula could cascade into China, making China’s challenge of providing for its own people that much more difficult. The refugee issue is already a problem for China. Beijing’s promise to repatriate North Koreans escaping across the border has consistently triggered condemnation from human rights groups. Beijing began constructing a barbed-wire fence more than a decade ago to prevent migrants from crossing, and a report in December 2017 indicated China had plans to construct refugee camps along its border as a contingency for a peninsular crisis. The majority of North Korean refugees first make their way to China before moving to other parts of Asia, including South Korea. However, tightened border controls under Kim Jong-un have decreased the outflow of refugees.

Though Beijing favors a stable relationship with Pyongyang, it has also bolstered its ties with Seoul. China’s Xi Jinping has met with South Korean President Moon Jae-in and his predecessor, Park Geun-hye, on several occasions. China was South Korea’s top trading partner in 2017 and the destination for a quarter of the South’s exports. Meanwhile, South Korea ranked fourth among China’s trade partners. In recent years however, China has taken retaliatory measures against South Korean businesses to oppose the deployment of a U.S. missile defense system in South Korea’s eastern province of North Gyeongsang.

Experts say China has also been ambivalent about its commitment to defend North Korea in case of military conflict.

The 1961 Sino-North Korean Treaty of Friendship, Cooperation, and Mutual Assistance, up for renewal in 2021, says China is obliged to intervene against unprovoked aggression. But Bonnie Glaser of the Center for Strategic and International Studies says the Chinese government has tried to persuade North Korean leaders to revoke the clause that would force Beijing to come to Pyongyang’s defense.

It is said alliance between Beijing and Pyongyang as a thing of the past, Xi still envisions Beijing as playing an instrumental role in interactions between its neighbor and other international players. Kim and Xi appeared to strike a more amicable chord by holding a secretive meeting in Beijing in late March 2018, marking the North Korean leader’s first trip outside of his country since coming to power more than six years earlier. While Xi heralded the tradition of friendship between China and North Korea, Kim reiterated a commitment to denuclearization and a willingness to hold a dialogue with the United States.

Meanwhile, Beijing has urged world powers not to push Pyongyang too hard, for fear of precipitating the leadership’s collapse and triggering dangerous military action. It has also intimated that if Pyongyang initiates conflict, it would not abide by its treaty obligation and instead stay neutral. Some experts have suggested that in the event of conflict, Chinese forces may not be involved in coming to North Korea’s defense, but rather would seek to play a significant role in shaping a post-Kim peninsula to its liking.

Washington’s Role
The United States has pushed North Korea to irreversibly give up its nuclear weapons program in return for aid, diplomatic benefits, and normalization of relations. But experts say Washington and Beijing, while sharing the goal of denuclearizing North Korea, have different views on how to reach it. The United States values using pressure to force North Korea to negotiate on its nuclear weapons program, while China advocates for the resumption of multilateral talks and what it has called a freeze for freeze, a freeze in military exercises by the United States and its allies for a freeze in North Korea’s nuclear and missile testing. Ultimately, for Beijing, stability on the Korean Peninsula has always been prioritized over denuclearization.

Washington has also tried to pressure Beijing to lean more heavily on Pyongyang. U.S. presidential executive orders and congressional moves impose sanctions on countries, firms, or individuals contributing to North Korea’s ability to finance nuclear and missile development. Some measures target North Korean funds in Chinese banks, while others focus on its mineral and metal export industries, which make up an important part of trade with China. Washington deployed a missile defense system known as the Terminal High Altitude Area Defense, or THAAD, in 2017 to boost regional security, though Beijing strongly condemned the move and sees it as a threat to Chinese national security.

The administration of President Donald J. Trump has shaken up U.S. policy toward North Korea. Officials have stated that all options are on the table, alluding to the possibility of preemptive military strikes to thwart Pyongyang’s nuclear tests and development. Trump has also warned that Washington will be prepared to take unilateral action against Pyongyang if Beijing remains unwilling to exert more pressure on its neighbor. If China is not going to solve North Korea, we will, Trump said in an April 2017 interview with the Financial Times. Going even further, Trump told the UN General Assembly in September 2017 that the United States would have no choice but to totally destroy North Korea, if it was forced to defend itself or its allies. In January 2018 Trump softened his rhetoric and that March he accepted an invitation for talks with Kim in Pyongyang. Meanwhile, the U.S. military has stepped up joint exercises with Japan and South Korea and has periodically dispatched U.S. carrier strike groups near North Korea as a show of force.

Still, the United States appears more interested in leveraging China’s economic influence over North Korea. Some experts argue that Washington should impose more secondary sanctions that will penalize Chinese banks that help finance North Korean front companies. The U.S. Treasury has done just that, imposing some secondary sanctions on both Chinese and Russian entities. Meanwhile, other analysts worry that such economic pressures and further alienation of Pyongyang could embolden the Kim regime to resort to rash military action. Others question the effectiveness of sanctions in getting China to bring North Korea to the negotiating table. North Korea has vowed that the country’s nuclear weapons program will never be up for negotiation.

Looking Forward
North Korea is in a category all its own. The North Korean leadership has thus convinced itself that its existence as an autonomous state derives directly from its possession of nuclear weapons. Though China may be unhappy about North Korea’s nuclear brinkmanship, analysts say it seeks to avoid moves that could cause a sudden regime collapse. In a crisis, however, some say it would act swiftly to maximize its influence and protect its national interests.

Even as China signals that it will toughen its stance toward North Korea—though stopping short of challenging its survivabilitythere is mounting skepticism that China alone can resolve the North Korea problem. Chinese officials have emphasized that they do not hold the key to the issue. Some analysts say that China’s tightening of economic ties are unlikely to deter Kim’s nuclear ambitions, while others say the North Korean leader no longer cares what China thinks of its actions.

Whether Chinese pressure can sway Pyongyang to alter its behavior remains to be seen, especially in a climate of mounting distrust in Northeast Asia, but North Korea’s nuclear program is becoming increasingly problematic for China’s desire to maintain regional stability.

Business is booming between China, Japan and South Korea the US should get in on it. China, Japan and South Korea account for a quarter of the world’s output of goods and services. Their combined trade surplus is currently running at an annual rate of $400 billion. They can recycle that trade income to finance, with interest, most of America’s external deficit of $460 billion.

The economic and political relationships in what Asians call their golden economic triangle have been caught up in recent years in revived tensions stemming from difficult history, contested territorial claims and acute security problems on the Korean Peninsula and in the South China Sea.

None of those issues has been solved, but trade and investments flows in the last few quarters strongly suggest that political and business ties could be warming up.That is particularly the case between China and Japan. Those countries’ leaders have been considerably strengthened by recent political events — a landslide election victory in Japan and a Communist Party congress in China. Partly as a result of that, the Beijing-Tokyo dialogue seems to have become more constructive, and on the way to better and more cooperative relations.

On a more practical plane, years of patient work by Japan’s powerful business lobbies to protect and expand their market shares in China also appear to be paying off.

Japan takes it all
Indeed, after a 6.5 percent decline in Japanese sales to China last year, and a slow start at the beginning of this year, Tokyo’s exports to China soared at a sizzling annual rate of 22 percent in the two quarters between April and September.

The same trend is observed with respect to Japanese direct investments in China. In the first nine months of this year, those investments marked an annual growth rate of 13 percent, a huge turnaround from a 15 percent decline for 2016 as a whole.

That strong revival of direct investment flows to China is particularly important. It indicates that Japanese businesses are now more confidently betting on the profitability of their future operations in the vast and rapidly growing Chinese markets.

Beijing and Tokyo have turned over a new leaf in search of more constructive bilateral ties. Japan now seems to be responding to China’s win-win cooperation calls, and to Chinese invitations for active participation in Belt and Road projects linking Asia, Africa and Europe.

And a novelty is that Japan is not just selling to China; it is buying from its big Asian neighbor to such an extent that Tokyo’s trade deficit with China is its largest on record so far this year.
Yes, it is tempting to note that Japan’s $23.5 billion trade deficit with China in the first nine months of this year is in stark contrast to Japan’s $51 billion trade surplus with the U.S. over the same period. In spite of a sharp trade rhetoric from Washington, and Japan’s promises to get a more balanced bilateral trade, America’s red ink with Japan is now virtually unchanged compared with last year.

Meanwhile, South Korea’s trade business with China also remains very strong. Political and economic problems caused by the deployment of the U.S. missile shield in South Korea, and differences about relations with North Korea, appear to have been smoothed out and put to the side for the time being.

US should do Asian megadeals
China is South Korea’s most important trade partner and a destination for 25 percent of its exports (the U.S. is a distant second, taking 13 percent of Seoul’s export sales). In the first 10 months of this year, South Korea’s sales to China, and its trade surplus with China, are running at annual rates that are virtually identical to those observed in 2016.

High-level contacts are also under way, following China-South Korea summit meetings on the sidelines of the APEC conference in Vietnam earlier this month, to stabilize the Sino-Korean ties “in accordance with the size of the bilateral trade.”

Another encouraging development is a strong revival of the Japanese-South Korean business relations. Japan’s exports to Korean markets soared at an annual rate of 21 percent in the first nine months of this year, after a 5.7 percent decline for all of 2016. Over the same period, South Korean exports to Japan increased 17 percent a remarkable recovery from a 16 percent decline during last year.

All that is wonderful news, even though this surging trade in Northeast Asia cannot be explained by purely economic factors. There is no evidence, for example, of strong and sudden increases in domestic demand (which drives external trade flows) in any of those three countries, or in an unexpected discovery of their economic complementarities.

Take the case of Japan. The growth of its domestic demand in the first three quarters of this year increased at an annual rate of only 0.8 percent. And, from Tokyo’s perspective, the economies of South Korea and China are also increasingly seen as credible competitors in many product and service lines.

Therefore, the reasons for the booming trilateral business have to be sought in improving political ties. These often estranged neighbors have been unsuccessfully talking for years about liberalizing their mutual trade relations only to be sidetracked by a constant resurgence of bitter war memories, colonial humiliations, unsettled maritime borders and absurd rivalries.

Threats of a more difficult access to European and American markets could be another reason why these Asian neighbors may have decided to internalize larger segments of their trade flows.
Most people will now spring for Trump’s tough trade talk as the main factor driving the countries to closer economic and political relations. That would be a wrong conclusion, but that seems to be the mood of the times. So far, Trump is largely innocent on that count; he has not done much, if anything, to stop lopsided trade rules and practices that cost hundreds of billions of dollars to the American economy every year. Chinese, Japanese and South Korean products are widely available in the U.S. at very competitive prices — often cheaper than in their markets of origin.

But, as any simple traveler and comparison shopper can discover, that is not the case of American or European products in Asian markets. Most of those products are either unavailable, or, when they are, they are subject to exorbitant customs duties that double and triple the prices charged in their home markets in Europe and America.

Investment thoughts
The evidence since the beginning of the year is showing an exceptionally strong growth of trade flows among China, Japan and South Korea. China is at the center of this rapidly developing trend.Japan’s export-driven economy is the biggest beneficiary of the soaring Northeast Asian trade. Partly thanks to China, which takes one-fifth of Japanese overseas sales, net exports accounted for 50 percent of Tokyo’s average annual growth of 1.5 percent in the first three quarters of this year.

The schmooze revolves around Japan’s hopes to get back the four islands (that Tokyo calls northern territories) the Red Army took in the closing days of WWII. Tokyo most probably won’t get any islands back, but it could be part of Russia’s energy and infrastructure projects currently under way.The U.S. should get in on the Northeast Asian trade bonanza by continuing to push its exports and direct investments. So far this year, the dynamics are good. Exports to South Korea and China are growing at annual rates of 17.6 percent and 15.2 percent, respectively. Japan, by comparison, is a laggard, with its imports from the U.S. growing at a relatively modest rate of 7.8 percent.

Trump might wish to take a closer look at all that. Instead of trade squabbles and military threats that South Koreans and Chinese don’t want, Asian megadeals would help to rebalance America’s trade accounts and to support the growth of jobs and incomes.

China set to strengthen economic ties with Japan, South Korea amid trade row with United States

China is seeking to expand its influence in East Asia by increasing its engagement with Japan and South Korea ahead of a historic summit between United States President Donald Trump and North Korean leader Kim Jong-un in June.The annual summit, which was first held in 2008 but has been repeatedly postponed in recent years due to historical and territorial disputes between the three nations, comes amid an apparent detente on the Korean Peninsula, although North Korea is expected to remain high on the agenda.

Leaders of South Korea, Japan and China to meet and discuss North Korea

As important nations of the region, major economies of the world and the beneficiaries of an open economy, cooperation between China, Japan and South Korea is gaining momentum.

Li said also that a bilateral currency swap agreement between Beijing and Tokyo would be signed during his visit to Japan, and that China would grant quotas to Japanese investors under its renminbi qualified foreign institutional investor scheme.

Cooperation – not North Korea – to take centre-stage at summit with Japan and South Korea, China says

With an all-out trade war between China and the US still a real possibility, Beijing has been focusing its diplomatic efforts on boosting its regional economic relations, observers said.

China will want to focus on economic cooperation at the summit. Building strong economic ties with Japan and South Korea will be beneficial.China is likely to promote a free-trade economic zone among the three countries to strengthen economic ties. Stable relations with close neighbours like Japan was important to Beijing as it would aid the development of the Belt and Road Initiative, President Xi Jinping’s signature drive to expand China’s trade and investment along ancient land and maritime routes.

In a move towards rapprochement after years of tension, Abe has expressed an interest in Japan becoming involved in the belt and road plan, while the two countries are also expected to explore business cooperation in third-party nations.Japan knows it needs a balance between China and the US – despite its alliance with the US – while China needs a stable relationship with its neighbours like Japan.

Japan and China ‘won’t mention disputed islands’ in sovereignty hotline talks
During the historic meeting between the leaders of the two Koreas on April 27, Seoul and Pyongyang pledged to work together for an official end to the Korean war and convert their armistice into a peace agreement before the end of the year.

However, Moon and Kim said this could be achieved only through trilateral meetings involving the two Koreas and the United States, or four-way talks, with China as the additional participant.China wants to exercise its influence with regards to the changing situation on the Korean peninsula. This could be a reason they are focusing on regional diplomacy, to ensure they remain engaged.There is already a huge business and economic prospects and big volumes are trade already happening this will multiply once North Korea gets together this could be a huge pool of Economic and Trade.

Sourced & Compiled by
Mr. Arvind Sinha – CEO & Chief Advisor
M/s. Business Advisors Group, Mumbai
Cell No. 9820062612 / 8108612612
Email ID: arpsinha09@gmail.com / lionasinha@gmail.com