The decision by state-run Chinese banks to halt dealings with certain North Korean financial entities is set to have a significant psychological and economic impact on Pyongyang.
On the 7th, Bank of China announced that it would close accounts held by Chosun Trade Bank (Foreign Trade Bank) and halt all financial transactions with it. Since then, other Chinese state banking entities including China Construction Bank have apparently ceased business dealings with North Korean financial entities as well. The banks did so in accordance with guidance handed down by the China Banking Regulatory Commission, and as such is actually a policy of the Chinese government.
The United States had been pushing hard for active Chinese participation in the implementation of financial sanctions since March, and yesterday the Department of State welcomed the action. Spokesperson Patrick Ventrell called the move an effort to implement sanctions. “We welcome steps that increase the sanctions,” he noted. “You know they (China) have a special relationship and a special influence, and we continue to urge them to use that influence to help get North Korea to make better decisions.
In the view of South Korea and the United States, Chinese state-run banks have long been a key lifeline for the Kim regime, providing a means for foreign currency-earning enterprises to perform financial transactions with international partners, and in this way to obtain hard currency funds to pass back to Pyongyang for use in both maintaining the ruling system and weapons development alike.
According to Choi Myung Hae of Samsung Economic Research Institute (SERI), “We can say that this is very symbolic because it means China is cooperating with unilateral U.S. sanctions. In particular, because it targets those banks where doubts have been raised over illegal transactions, which are the target of the U.S. sanctions rather than normal transactions, it looks like something aimed at North Korea’s ruling funds.”
“This case can shake the North Korean system; it only targets their ruling funds and is not related to livelihoods or reform, so for North Korea it is very aggravating,” he added.
