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China is putting the squeeze on North Korea. But for how long?

North Korean leader Kim Jong Un is seen in this undated photo from the Korean Central News Agency. Chinese websites are reportedly censoring the popular nickname for the North Korean leader, "Kim Fatty the Third," as relations between China and North Korea break down over North Korea's nuclear program.

COURTESY OF KCNA

By ANNA FIFIELD | The Washington Post | Published: November 18, 2016

DANDONG, China — There's a chill in the air in Dandong these days, and not just because winter is coming.

A steady stream of trucks still rumbles across the single-lane bridge from China to North Korea from dawn until dusk every day, and North Koreans can still be seen in the streets and in the restaurants of this grimy border city, the commercial gateway to the isolated state.

But trading 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."

This news might be slightly more encouraging than official Washington has been expecting - but only slightly. Although China is annoyed with North Korea, its primary consideration - keeping the regime afloat - has not changed.

Indeed, the chill here is partly because of the tough international sanctions imposed in March after North Korea conducted its fourth nuclear test. They are aimed at cutting off North Korea's ability to earn hard currency through coal exports and shipping.

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.

For more than a decade the international community, led by the United States, has tried to inflict economic pain on North Korea in an effort to convince it that the costs of pursuing a nuclear weapons program outweigh any benefits.

Increasingly tight rounds of sanctions have, however, clearly failed to change the regime's calculus. Kim Jong Un has ordered two nuclear tests and dozens of missile launches this year, apparently aiming to produce a nuclear weapon capable of reaching the U.S. mainland.

Sanctions are the only tool that the international community really has, given that there is no appetite for engagement and even less for military action.

In March, the U.N. Security Council passed a resolution that , among other tough measures, ordered mandatory inspections of all cargo going into North Korea and banned North Korean exports of coal, iron and iron ore unless they are for "livelihood purposes."

But with almost all North Korean trade going through China, and Dandong specifically, sanctions are only as effective as Beijing wants them to be. Beijing doesn't want the collapse of its impoverished nuclear-armed neighbor, and it certainly doesn't want the 28,000 American troops stationed in South Korea to be able to move right up to the peninsula's border with China.

"China has a permanent interest in keeping North Korea afloat no matter what," said Andrei Lankov, a Korea expert who teaches at Kookmin University in Seoul. "You will never be able to persuade China to do something different."

As a result, this frontier long has felt like a border in name only.

There were always officials willing to turn a blind eye, middlemen brokering deals in the shadows, entrepreneurs looking to gain a foothold in what they hoped would become an increasingly open market.

Sanctions were a matter for faraway Beijing, and even-farther-away Washington.

But there's a shift in the wind. And the question now is: After the nuclear tests and missile launches, including three while China was hosting the G-20 meeting in September, is Xi Jinping angry enough to inflict a little more pain on Kim Jong Un?

Reluctance to close a loophole

What was once a black-and-white picture - China supported sanctions in principle but not in practice - has become a complicated gray one.

There's plenty of activity going on here. Dozens of trucks laden with steel rebar and sacks of cement line up on the road outside the customs house every day, waiting to cross into North Korea.

At the main logistics center, everything from tangerines to a Mercedes-Benz SUV without tags was being prepared for export on a recent day. The customs process has become a little more complicated, said a North Korean driver with a truck full of tiles. "But if you pay, it's okay."

Solar panels and generators continue to be popular, and there are still tens of thousands of North Korean laborers here. And trade in coal, which comprises about 40 percent of North Korea's exports, hit a record in August.

That is because China has a different interpretation of the "livelihood exception," according to Western diplomats involved in the process. While the international community has focused on the ban, China is focusing on the exception.

Diplomats in Beijing are highly doubtful that the Chinese government has any intention to seriously punish North Korea, expressing frustration at the coal figures and skepticism about reports of tougher times on the border.

In the wake of September's nuclear test, the United States has been pushing the United Nations to close the loophole, but China has resisted.

China still believes it should not hurt ordinary people in North Korea, said Zhang Tuosheng, director of research at the China Foundation for International Strategic Studies.

"The main problem is that the gap between the U.S. and China on North Korea is so huge," Zhang said. "I don't think China would agree to close the livelihood exception. That would damage ordinary people."

But one joint action, even if it was grudging, has had a tangible impact.

In September, the U.S. Justice Department slapped sanctions on Dandong Hongxiang Industrial Development company and its chief executive, Ma Xiaohong, accusing her of using the company as a front to channel American dollars to North Korea, helping it to finance its nuclear weapons program. It was the first time Washington had used "secondary sanctions" to punish a Chinese entity for helping North Korea.

Chinese provincial authorities, while saying their actions were independent, responded by detaining Ma and launching an investigation of Hongxiang, alleging the company committed "serious economic crimes."

That someone who was such a big mover and shaker here could be stopped in her tracks has sent shivers through Dandong.

"Ma was a city official and the government doesn't usually mess with people like that. It's had a very serious impact here," the Korean Chinese factory owner said.

The South Korean businessman echoed this sentiment: "I personally think that the Hongxiang case has had a bigger impact than sanctions. The vibe I get is that people are being cautious."

In interviews, businessmen detailed an increasingly difficult operating environment.

"Last year, I did about 10 big deals - construction equipment, automobiles - but this year I've done none," said a Korean Chinese intermediary who brokers deals for investors on both sides of the border.

The actions, and specifically those against Hongxiang, have riled some locals.

"Dandong people are feeling insulted, like the Americans are bullying us," said a man who said his name was Wang and who drives businessmen around town. "This was business approved by the governments in China and North Korea. You can link any material to nuclear development if you want to."

People involved in the Hongxiang case warn against seeing China's response as the start of a broader crackdown, with one saying that getting Beijing to act was exceptionally difficult.

But recent evidence shows, Lankov said, that Beijing has decided to enforce - and not enforce - sanctions in a new, controlled way.

"This is all being done at the central government level, assuming that low-level officials are difficult to control," Lankov said. "They need it to be planned and measured."

China will always put its interests first, he said.

"They want to have the situation under control. They will keep North Korea afloat but the central government in Beijing will decide which buttons to push and when."

How long will this chill last?

Business executives here are hopeful that it won't continue much longer. "Whenever there are specific events, China shows that they have tightened up for a short period. But after some time, it goes back to business as usual," said one of the South Koreans who spoke to The Post.

But the ball is in North Korea's court.

"It depends on whether there is a sixth nuclear test or not," the Korean Chinese middleman said. "If that happens, things are going to get even harder."

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Yoonjung Seo and Congcong Zhang contributed reporting.
 

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