By Xander Snyder

The U.S. is pushing China deeper into a corner over the crisis on the Korean Peninsula. It wants the Chinese to persuade the North Koreans to give up their nuclear weapons and ballistic missile programs. The popular perception is that Beijing has substantial leverage over Pyongyang, partly because China is North Korea’s largest trading partner. China has also cultivated this impression by frequently offering to act as a mediator with North Korea in exchange for trade concessions from the United States.

Now, the U.S. is resorting to public pressure. The acting U.S. assistant secretary of state for East Asian and Pacific affairs recently urged China to continue to use its leverage over North Korea and said there will be consequences if China does not. More important, U.S. President Donald Trump and Chinese President Xi Jinping will hold the first of four planned security discussions on June 21, focusing on tensions on the Korean Peninsula. Casting an ominous cloud over these discussions, Trump tweeted on June 20 that China’s efforts at mediation appeared to have failed. Later that night, U.S. satellites reportedly detected modifications to an underground North Korean test site that may be preparing for the country’s sixth nuclear test.

This all raises the question: Does China have the power to deter the North Koreans, and how much influence does Beijing actually have over Pyongyang?

Steps Taken

China has already taken some steps to try to apply pressure on the North Koreans. In February, Beijing said it halted imports of North Korean coal, in accordance with U.N. sanctions. These sanctions limit North Korean coal exports – which were worth $1 billion in 2014 – to $400 million for the year. Earlier this month, after North Korea conducted another round of missile tests, the U.N. expanded sanctions by freezing the assets of four North Korean companies and 14 members of the regime and imposing a travel ban on the same individuals. China supported this motion, although enforcing it will require the participation of its financial institutions.

China has also taken action with regard to migrant laborers from North Korea. In March 2016, the Chinese government informally told Chinese companies to stop hiring North Korean workers, according to the Nikkei Asian Review, which cited an anonymous source. North Koreans living abroad provide a vital source of hard currency to the regime, up to $2.3 billion annually according to some estimates.

Chinese vendors sell North Korean and Chinese flags on the boardwalk next to the Yalu River in the border city of Dandong, Liaoning province, northern China, across from the city of Sinuiju, North Korea, on May 24, 2017. Kevin Frayer/Getty Images

Then there’s the question of what China can do that it hasn’t yet done. The answer is: not a whole lot. It could impose greater financial sanctions, from implementing additional asset freezes to a total ban on Chinese companies dealing with North Korean businesses. But it seems unlikely that financial sanctions could deter North Korea from pursuing a program that it considers core to its security interests, especially if pressure on its supply of hard currency and coal exports has not done so already.

That leaves Chinese crude oil exports as Beijing’s strongest remaining point of leverage. North Korea generates most of its electricity from coal, but its military would depend on crude oil if a conflict were to break out. Without it, Pyongyang’s ability to wage war would be significantly curtailed. Though China no longer discloses how much crude oil it exports to North Korea, some estimate that the figure is as high as 500,000 tons per year, or approximately 3.7 million barrels. North Korea is believed to have only minimal capacity to produce crude oil domestically, and its imports from Russia are not substantial. Fear of dwindling oil supplies may be why the regime reportedly restricted gas supplies to government agencies and diplomats about a month ago, turning away other residents.

But China may decide that it’s not in its interest to cut oil supplies to North Korea. If Beijing believes this move won’t actually persuade Pyongyang to give up its nuclear weapons and ballistic missile programs, it may want to avoid antagonizing the North ahead of a possible conflict. If war does break out and the regime survives, China won’t want to be on Pyongyang’s list of enemies.

Exploring All Options

Short of military action, there’s not much China can do. Given these limited options, there are two reasons the U.S. would continue to demand further action from China. First, the U.S. will explore all options within a certain window of time before resorting to force. In the lead-up to the Iraq War in 2003, the international community tried to mediate a solution, and the U.S. declined the offer. This time, it will seek mediation from anyone willing to offer – even Dennis Rodman, who visited North Korea just last week.

If it decides that a strike is necessary, the U.S. wants to be able to point out that it tried every diplomatic solution, including using China as a mediator, before it resorted to force. And by pushing China to act as an intermediary, it can argue that it was China, in fact, that failed to prevent the war through its inaction.

The second reason the U.S. is demanding further action from China has less to do with North Korea and more to do with China. Since China has long used its supposed influence over North Korea as a way to gain concessions from the United States, the U.S. is now calling China’s bluff. If China can’t sway the North Koreans, then it will no longer be able to use them as a bargaining chip in future negotiations with the United States.

Statements by officials are often just hot air. In this case, however, by publicly demanding greater action from China, the U.S. is telling the Chinese that the time to act is now. Public posturing is providing the U.S. with real leverage in its private discussions with Beijing. But China’s window of opportunity is closing, and if Trump’s tweet is any indication, it may have already closed.

Xander Snyder
Xander Snyder is an analyst at Geopolitical Futures. He has a diverse theoretical and practical background in economics, finance and entrepreneurship. As an investment banker, Mr. Snyder worked in corporate debt origination and later in a consumer-retail industry group at Guggenheim Securities, participating in transactions ranging from mergers and acquisitions, equity and debt capital raises, spin-offs and split-offs to principal investing and fairness opinions. He has worked on more than $4 billion worth of transactions. He subsequently co-founded and served as CFO for Persistent Efficiency, an energy efficiency company that used cutting-edge technology to create a new type of electricity sensor for circuit breakers and related data services. In his role, he was responsible for raising more than $1.5 million in seed capital and presented to some 70 venture capital and angel investors in the process. He also signed four Fortune 500 companies as customers, managed all aspects of company accounting, budgeting and cash flow, investor relations, and supply chain and inventory management. In addition to setting corporate strategy, he helped grow the company from two people to a 12-person team. As an independent financial consultant, Mr. Snyder wrote an economics publication for a financial firm that went out to more than 10,000 individuals and assisted in deal sourcing for a real estate private equity fund. He is an active real estate investor and an occasional angel investor. Mr. Snyder received his bachelor’s degree, summa cum laude, in economics and classical music composition from Cornell University.