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NORTH KOREA NEWSLETTER NO. 262 (May 16, 2013)
*** TOPIC OF THE WEEK (Part 2)

More Chinese Lenders Suspend Transactions with North Korean Bank

SEOUL (Yonhap) -- Leading Chinese lenders, including the state-run Bank of China, have joined together in imposing restrictions against a key North Korean bank suspected of funding the North's nuclear weapons program.

   The move appears to be an indication that Beijing is more willing now than before to carry out sanctions against Pyongyang in accordance with the international community's punishment of the socialist country for its third nuclear test in February.

   The Bank of China announced on May 7 that it closed the account of the North Korean bank. A spokeswoman for the Beijing-based Bank of China reportedly said that it had notified the Foreign Trade Bank of North Korea that its accounts were being closed and all financial transactions suspended without offering further details.

   A Seoul government source said on May 10 the government was aware that more Chinese lenders have cut their dealings with the North's Foreign Trade Bank, Pyongyang's main foreign exchange bank that has been accused by the United States of helping finance Pyongyang's nuclear weapons program.

The source, who spoke on the condition of anonymity, said the South Korean government has "figured out" that some of other major Chinese banks -- China Construction Bank, Industrial and Commercial Bank of China and Agricultural Bank of China -- have severed dealings with the North Korean bank.

   "It has not been confirmed that the four major Chinese banks suspended dealings with the North's Foreign Trade Bank, but it is believed that some of them, including the Bank of China, stopped doing business with the North Korean bank," the source said.

   Seoul's foreign ministry sounded a positive note on the Bank of China's decision to cut dealings with the North Korean bank. "I have read a press report that the Bank of China, a Chinese state-owned bank, announced that it had shut down the accounts held by North Korea's Foreign Trade Bank. Our government is aware of relevant moves," ministry spokesman Cho Tai-young told reporters on May 9.

   Cho said the Chinese decision is in conformity with its repeated assurances that it is willing to honor a U.N. sanctions resolution adopted in March in connection with the North's latest nuclear and missile tests.

"The Chinese government made it clear at the time of and after the adoption of the latest U.N. Security Council resolution on North Korea, that it would implement relevant sanctions in a responsible manner," Cho said. "I deem that although the Foreign Trade Bank is not listed under the resolution, it is being sanctioned in accordance with the aforementioned policy direction of China."

   Financial industry sources in Beijing also said other state-run banks like China Construction Bank and Agricultural Bank of China joined the Bank of China in suspending business with the North Korean bank and the measure was in accordance with a guideline of China's financial authorities although they have not made the measures public.

   Diplomatic sources in Beijing believed the Chinese banks' measures show that China has substantially accepted the U.S. call regarding the sanctions on North Korea. China has so far been lukewarm in cutting trade with the North Korean bank, which was not put on a sanctions list by the U.N. Security Council's resolution but has been pressured by the United States.

   The U.S. State Department welcomed the measure by the Bank of China. "We welcome steps that increase the sanctions," said Patrick Ventrell, deputy spokesman for the State Department, during a press briefing on May 9.

   China's official position is that the measures taken by the Chinese banks are taken by the banks on their own. A diplomatic source in Beijing said the Chinese government may hope to show the world that the banking measures were taken by the financial watchdog or banks citing the reaction of the Chinese foreign ministry.

   The Seoul government, however, believes the Chinese government's intent has been reflected in the measures, pointing out the policy executing process in the country and that the involved banks are state-owned. The government puts substantial significance in the Chinese banks' measures, saying that they are "substantial," considering the role of the (North's) Foreign Trade Bank in North Korea-China trade.

   Some experts, however, are skeptical that the actions taken by the Chinese banks would make any remarkable impact on the communist country. They noted that a considerable part of North Korea-China trade is made through means other than official financial systems of the two countries. In many cases, North Korea pays the price for imported goods in materials like gold and valuables, they noted.

   The 38 North, an online site specializing in North Korean affairs, said North Korea's foreign trade has grown substantially since 2005 despite financial sanctions -- not just with its main partner China, but also with countries throughout Southeast Asia, Africa and Europe. North Korea is also trading with many regional banks in China, and the central government's influence on these smaller banks should be limited, according to an article on the site operated by the U.S.-Korea Institute at the Paul H. Nitze School of Advanced International Studies (SAIS) of the Johns Hopkins University. Regional banks in China, the site said, are suspected of doing substantial business with North Korea, although most of the North's trade with China does not use the banking system there at all.

   Chang Yong-seok, a senior researcher at the Institute for Peace and Unification Studies at Seoul National University, said there is some uncertainty on how great the financial sanctions against the North Korean bank would be considering there are many regional banks and non-government banks in China, and that a substantial part of North Korea-China trade is made through cash payments.

   China is the North's last-remaining ally and offers an economic lifeline, but analysts say Beijing has been increasingly annoyed by the North's provocations. In April, China's President Xi Jinping said, "No country should be allowed to throw a region and even the whole world into chaos for selfish gains," a remark widely viewed as a swipe at North Korea.

  (END)
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