The Case of Hongxiang and the US Pressure on China
On September 26, 2016, the USA introduced sanctions against a Chinese company linked to the North Korean nuclear and missile weapons development program. The company in question is Dandong Hongxiang Industrial Development (a.k.a. Hongxiang Group), which is engaged in the supply of industrial equipment, and its four representatives. The US Ministry of Finance officially included them in the sanction list. All the company’s property and assets and those of its leadership in the USA have been frozen, while a number of the South Korean media report that the company has almost suspended its operation, and its website has been shut down.
Chinese law enforcement agencies are also investigating the case of the Hongxiang Group, looking into the North Korean companies related to it, including the North Korean Kwangson Bank. The Bank is included in the sanction list of the UN Security Council as the major shareholder of a logistics company in Dandong (a part of Hongxiang Group). The head of the bank’s representative office in Dandong urban district of Liaoning province has been called in to give evidence, while North Korean sales representatives have been prohibited from leaving the country.
What is the Corporation accused of? Hongxiang Group is suspected of supplying components and materials linked to the nuclear program including aluminium oxide, tungsten trioxide, and other dual-use goods that can be used for uranium enrichment by the North. The major source of accusations is a joint study by the South Korean Asan Institute and the US Center for Advanced Defense Studies.
Moreover, according to the Acting Deputy US Secretary of Treasury Adam Shubin, employees of Hongxiang Group have tried to evade sanctions introduced by the USA and the UN and provide Pyongyang with access to the US financial system. In particular, they have been providing financial services to the above-mentioned Kwangson Bank that managed the funds of Hongxiang Group and settlements under export and import transactions with the DPRK.
The company has allegedly been laundering North Korean money via dummy companies operating with US banks. According to the South Korean experts who allegedly attracted attention to this fact, the company invested 532 million dollars in North Korean business over the period from 2011 to 2015 yet the reactor construction in Yongbyon cost less than 700 million.
The Chinese company is even accused of supporting North Korean hackers. According to the US media, the Obama administration has “attacked” a Chinese company for the first time ever, and the history of Dandong Hongxiang Industrial Development Co serves as an example of both Chinese support of the Kim Jong-un regime and US actions to break such contacts. Yet, America openly says that imposing sanctions on Hongxiang should play a role similar to the punitive measures against Banco Delta Asia in 2005 i.e. they are a signal for the Chinese companies to suspend relations with the DPRK or face the same fate.
However, the US Ministry of Justice notes that it has not brought charges against China’s banks related to Hongxiang so far. This fact causes indignation among proponents of a tough policy. In the open letter to B. Obama, 19 Senators highlighted that the Bank of China might have helped customers linked to the DPRK obtain 40 million dollars from American banks. Although these speculations and ties between the customers with North Korea need to be investigated first, sanctions should be introduced. Otherwise, how else can the threat be stopped and a lesson taught to the violators?!
On September 21, 2016, a senior administration official, the Deputy National Security Advisor Ben Rhodes announced that China was obliged to prevent the export of prohibited goods to the Democratic People’s Republic of Korea, especially dual-use goods. He announced that Beijing was expected to respond in a proper way to the provocative acts that might cause additional sanctions. The Chief Expert of the US National Security Council on Proliferation Issues Jon Wolfsthal agrees with him, “The U.N. resolutions clearly ban the export of any items that can be used for Pyongyang’s nuclear and missile programs even if it is a pencil (http://english.y
In this context, the USA and China are engaged in another conflict related to coal trade between Beijing and Pyongyang. The USA is trying to stop this supply but, as the official representative of the Foreign Affairs Ministry of China Geng Shuang announced on September 28, this trade has been carried out in accordance with the regulations and resolutions, as well as the national laws and regulations of the PRC, and does not violate international law and UN resolutions on sanctions against Pyongyang, which permits the coal trade with the North.
This statement was made in response to the speech of the Assistant US Secretary of State Daniel Russel who announced that the USA was working to block the loopholes the North used to obtain foreign currency. In this context, Russel noted that the North had earned 1 billion dollars from coal sales to China every year, which was a third of the total sum of North Korean exports. However, an item on the possible export of the North Korean coal was included in the UN Security Council resolution with due account for China’s opinion.
While the South is trying to present the case so that the Resolution 2270 adopted by the UN Security Council in March 2016 generally prohibits the import of North Korean coal, it actually concerns a ban on the supply that provides income that could be used for the development of nuclear and missile programs. As a result, the export volume of coal to China is increasing. On September 24, the Japanese Nihon Keizai Shinbun published an article, which stated that the import volume of coal from North Korea to China sharply dropped by 38% in April 2016 when compared to the same period of the previous year, and this trend had lasted until July. However, this indicator started to grow in August having increased by 27.5% year-on-year. The overall trade volume between North Korea and China has also increased by 30%. South Korean experts believe that the restoration of imports of North Korean goods to China has taken place due to the Chinese government relaxing its level of control, which reflects their dissatisfaction with THAAD missile defense system placement on the Korean Peninsula.
Thus, the attempt to dictate unilateral sanctions to Beijing has failed so far. In addition, they often emphasize that “Beijing opposes unilateral sanctions that do not help in solving the issue.” This was announced on September 15 by the Foreign Affairs Minister of China Wang Yi during a telephone conversation with his Japanese colleague Fumio Kishida. The same position was expressed on September 22 during a meeting with the special representatives of China’s and the Republic of Korea’s governments, where they discussed countermeasures in respect of the fifth nuclear test conducted by Pyongyang. The South Korean party is reported to have demanded the adoption of stricter sanctions against Pyongyang from China, including the ban of the land transportation of cargo, but China refused.
The concealed disagreement was reflected in the statement made by the UN General Secretary Ban Ki-moon who expressed his dissatisfaction with the delay in the adoption of additional sanctions in response to the fifth nuclear test of the DPRK. He stated that the UN Security Council had spent too much time on it.
Meanwhile, China’s attitude in respect of the sanctions against the North is quite clear. According to a report by a Senior Research Fellow of the Sejong Institute Chun Jae-hon presented at the Forum in Seoul “Korean Unification and Security Issues”, China is not willing to support the sanctions against the DPRK, which will result in the fall of the current regime and deterioration of the living standards of North Koreans. According to the speaker, the fall of Kim Jong-un regime “is fraught with unpredictable consequences,” including integration of the both Koreas under the guidance of Seoul. Beijing does not want a united Korea, that would be an ally of the USA, to appear in on its border and it will do everything possible to prevent it. In fact, the Chinese government has restricted the level of sanctions in respect of Pyongyang all the while implementing the UN resolutions and not exceeding them by imposing additional unilateral measures, as the United States or its allies do. And it will not go beyond this level under any circumstance.
Konstantin Asmolov, Ph.D. in History, Chief Research Fellow at the Center for Korean Studies of the Institute of Far Eastern Studies of the Russian Academy of Sciences, exclusively for the online magazine “New Eastern Outlook”.
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