China banks rein in support for North Korea
By Simon Rabinovitch in Dandong, China
Financial Times, 14/05/2013
Top Chinese banks have halted most dealings with North Korea, an unprecedented move to use financial leverage against Pyongyang that reflects Beijing’s exasperation with Kim Jong-eun’s regime.
The Chinese financial blockade against North Korea goes beyond what Beijing had agreed to implement in UN resolutions, with several leading banks saying they have stopped all cross-border cash transfers, regardless of the nature of the business. A UN resolution this year only called for sanctions in cases where money might contribute to North Korea’s nuclear and ballistic missile programmes.
Nevertheless, the blockade is far from watertight. A smaller bank based in northeastern China across the border from North Korea said it was still handling large-scale cross-border transfers, an indication that Beijing is not willing to entirely cut off North Korea.
China is overwhelmingly North Korea’s most important economic partner. Trade between the two countries has grown rapidly in recent years, providing a vital cash lifeline to the isolated, impoverished state.
But diplomatic relations between the two neighbours have suffered over the past year. Mr Kim has yet to visit China since taking power at the end of 2011 and has rebuffed Chinese entreaties to refrain from nuclear bomb and missile tests.
Concerned about the consequences for regional security and also angered by Mr Kim’s disregard for China, Beijing has started to use the financial sanctions to ratchet up the pressure on North Korea.
Industrial and Commercial Bank of China, China Construction Bank and Agricultural Bank of China – China’s three biggest banks – said they had suspended all financial dealings with North Korea.
“CCB strictly adheres to all decisions taken by Chinese regulators and the UN Security Council,” CCB said. “At present, CCB has no business contact whatsoever with North Korean banks and all representative accounts [of North Korean] banks are closed.”
Bank of China, the country’s primary institution for foreign exchange transactions, said last week that it had closed the account of Foreign Trade Bank, North Korea’s main foreign exchange bank. However, asked whether it had also frozen other financial dealings with North Korea, Bank of China declined to comment.
Cai Jian, an expert on North Korea at Shanghai’s Fudan University, said it appeared to be the first time that Chinese banks had taken such co-ordinated action against Pyongyang.
“Previously even when China signed on to sanctions against North Korea, there was still a lot of economic activity between our two countries,” he said. “This time, I think, China’s banks received orders from the government to cut ties.”
Among China’s smaller banks, the picture is more mixed. A manager at the Bank of Dalian branch in Dandong on the border with North Korea said transfers to the country were still possible. “As long as the company is doing normal trade, not sensitive goods like arms, we can process the transfer,” he said.
China is estimated to account for nearly 90 per cent of North Korea’s overall exports and imports, but North Korea accounts for less than 0.2 per cent of China’s exports and imports. The bank sanctions threaten to undermine the financial architecture that keeps goods moving between the two countries.
Additional reporting by Emma Dong
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