Don't Count on China's Support on North Korea, U.S. Panel Says

(Bloomberg) -- The U.S. and its allies in Asia shouldn’t assume China will fully cooperate with the campaign to curtail North Korea’s nuclear arms program, a top priority of President Donald Trump, according to the annual report of a bipartisan congressional panel.

Despite concerns over North Korea’s advancing nuclear and missile programs, China remains the country’s largest trading partner and differs with the U.S. over the best way to handle Kim Jong Un’s reclusive regime, the U.S.-China Economic and Security Review Commission said in the report published Wednesday.

“The United States and the international community should keep their expectations low,” according to the report, “given China’s lackluster record of previous sanctions enforcement and continued sanctions violations by Chinese companies exporting dual-use items to North Korea.”

China faces a dilemma enforcing sanctions “in wanting to see some reform in the North Korean economy and not wanting to see a collapse,” panel commissioner Larry Wortzel told reporters before the report’s release. “We think their cooperation and exercise of sanctions will be fairly limited” by “what they see as their own national interest.”

Created by Congress in 2000, the commission has reported on China’s economic and military rise, usually in critical assessments accompanied by recommendations for counter-actions such as trade sanctions.

This year, the panel flagged what it said are increasing efforts by Chinese companies to invest in sensitive or strategic U.S. industries in ways that avoids close oversight, such as by creating shell companies based outside China. That’s making it harder for the Committee on Foreign Investment in the United States, known as CFIUS, to review the threat they could pose to national security, the report said.

Chinese companies “are becoming more sophisticated in their attempts to circumvent” CFIUS reviews and other U.S. investment regulations, the commission said.

Investments from China increasingly are targeting information communications technology, agriculture, and biotechnology, it said, while “investments in nonstrategic sectors like entertainment, real estate and hospitality are declining amid Chinese Communist Party efforts to limit capital outflows and reduce corporate debt.”

Trump’s Trip

The report hits at two key issues -- security and trade -- emphasized by Trump on his 12-day trip through Asia, which he said he was “very proud” of even though few big deals were announced.

“It’s been a great trip,” Trump said Tuesday aboard Air Force One as he headed home. “It’s also been really good, in terms of North Korea and getting everybody together.”

Trump used both confrontational and conciliatory language about North Korea on his Asia tour. On Nov. 11, he said it was “certainly a possibility” that he could become friends with Kim. But days after calling on Kim to enter peaceful negotiations, Trump spoke before South Korea’s parliament and listed a litany of alleged human-rights abuses against the North Korean leader, calling him a “deranged tyrant.”

The president has spent much of his first year in office trying to cajole Beijing to crack down more on trade with Pyongyang, saying China could “easily” and “quickly” fix the North Korean nuclear problem. In a Nov. 11 tweet, Trump said China’s President Xi Jinping “has stated that he is upping the sanctions against #NoKo. Said he wants them to denuclearize. Progress is being made.”

But according to trade data, the results have been mixed. Chinese-North Korean commerce slumped in September after a second round of United Nations-approved sanctions, but total trade rose 3.7 percent in the first nine months of the year to about $4.03 billion.

There’s little doubt that China “could strangle North Korea” since it accounts for 90 percent of the regime’s trade last year, “but I don’t think they will,” Wortzel said.

Chairman ‘Skeptical’

Panel Chairman Carolyn Bartholomew told reporters that “over the years we’ve watched China make commitments to enforce sanctions and then not quite live up to the commitment” so “I, at least, am skeptical about additional commitment that it makes.”

The U.S. panel relies largely on public sources and information gathered in trips to the region for its review of the status of China’s economic, political and military developments. The latest volume also outlines China’s progress in developing advanced technology such as high-powered lasers and other anti-satellite weapons as well as hypersonic munitions designed to fly five times the speed of sound.

Among other topics highlighted in the report:

  • North Korea’s missile arsenal is increasingly likely to survive an initial attack on the country because of its mobility, which “increases the difficulty for opposing forces to monitor and target them,” and solid-fuel propulsion that shortens the time needed to prepare for launch.
  • Despite North Korea’s advanced nuclear and missile programs, U.S. allies South Korea and Japan “have not substantially increased their bilateral defense cooperation.”
  • Some Chinese companies operate with little oversight under China’s opaque financial system, leaving U.S. investors exposed to exploitative and fraudulent schemes perpetrated by China-based issuers.
  • China’s efforts to develop a more consumption-driven economy should further boost U.S. services trade, which recorded a surplus of $38 billion last year, up from $438 million in 2006.

©2017 Bloomberg L.P.