Slider Blog
MERICS Blog, European Voices on China, Header


Rolf J. Langhammer

The international community’s trade and financial sanctions against North Korea have few chances of improving the dismal historic record of such instruments. Chinese reluctance to enforce them and US reluctance to irritate China always leave a way out for Pyongyang.

Chinese and North Korean flags

North Korea has become the target of an unprecedented sequence of economic sanctions. The country’s trade and financial flows have been curtailed by punitive measures both by individual countries such as the United States as well as by the United Nations, in agreement with Security Council members China and Russia. The spiral of measures blocking trade and financial transactions with North Korea has been extended with no visible effect so far.

Historically, economic sanctions have rarely led to the intended result of changing a target country’s political calculations. In the case of North Korea, the picture is even more sobering.

The country has two lifelines, an internal one, its nuclear capacity, and an external one, the caring hand of China. Kim Jong-un and his regime will retain the nuclear arsenal at any price, because it is its personal lifeline. The second lifeline is the one that keeps North Korea’s economy from collapsing, which is in the hands of the country’s largest trading partner and its main creditor.

1. Primary sanctions don’t work without transparent enforcement by China

Traditionally, North Korea runs a trade deficit with China, which must be financed. With sanctions against North Korean exports of first coal, then textiles and labor, North Korean imports from China would have to decline so that Pyongyang could still cover the import bill. According to Chinese trade statistics, this is the case, but it is impossible to verify whether lower volumes or price reductions contributed to the decline. China stopped publishing the volume of its oil exports to North Korea in late 2013, and it has not revealed the price that North Korea pays for oil and other products.

There is an equal lack of reliable information about other channels through which China can help North Korea earn or save foreign exchange, for instance via third countries, unofficial border trade, or hidden transfers to North Koreans visiting China. It is consensus among observers of North Korean external economic relations that the way North Korea finances its trade deficit is a black box.

The rationale behind China’s “benign neglect” attitude towards sanctions is that Beijing has always refrained from sanctions that would lead to a destabilization of living conditions in North Korea, let alone to the country’s economic collapse. Beijing views it in its own interest to prevent a sudden surge of North Korean refugees into Chinese territory.

2. North Korea can find a way around secondary sanctions

North Korea still has irregular and illegal sources of income through exports of drugs, weapons, or military software, again very likely with China’s benign neglect. Such sources would also remain unaffected by US treasury sanctions against banks and representatives linked to the North Korean financial network.

Even one of the possibly most effective sanctions, the US threat to sanction Chinese financial institutions that were found to do business with North Korea from their US-based businesses, will neither cut the internal nor the external lifeline. Beyond official financial institutions with overseas business, there are local Chinese institutions with no business abroad that can fill in as substitutes. Furthermore, the enforcement of such a threat could harm the US relationship with the country that finances its own current account deficit. Thus, the United States would certainly think twice before tightening this screw further.

It’s time to accept a stable balance of terror

In short, the Chinese position to stabilize the status quo and to act against any shock event on the Korean peninsula remains firm and unbroken. This is why a further escalation of words and of UN Security Council sanctions would not lead to a different result without a fundamental change of China’s behavior.

But perhaps the Chinese-backed status quo will save the world community from shortsighted activism with potentially disastrous consequences. Rather than pushing China for more sanctions, policy-makers in Washington might want to consider that it is a far less dangerous option to accept a relatively stable “balance of terror,” which could pave the way towards de-escalation and de-sanctioning. As the former British Prime Minister Winston Churchill famously said: “You can always count on Americans to do the right thing – after they have tried everything else.” Trying everything else would not be a smart move in the case of the North Korea crisis.