Trump Weighs More Pain for Chinese Firms Found Aiding North Korea — “We are putting the world on notice: The games are over.”

White House considering tougher financial penalties amid evidence Chinese firms are helping Pyongyang import and export weapons

North Korean leader Kim Jong Un supervised a ballistic rocket launching drill in this undated photo.

North Korean leader Kim Jong Un supervised a ballistic rocket launching drill in this undated photo. PHOTO: KCNA/REUTERS

WASHINGTON—The Trump administration is considering increasing financial penalties on Chinese companies in response to growing evidence of their support for North Korea’s weapons programs, according to U.S. and Asian officials.

The administration’s deliberations come as U.S. Secretary of State Rex Tillerson travels to Northeast Asia this week to try to unify Japan, South Korea and China behind a policy to constrain Pyongyang’s nuclear and ballistic-missile programs.

Mr. Tillerson is walking a delicate diplomatic path in his first trip to Asia as Washington’s top diplomat. U.S. officials said they want China’s support in punishing North Korean leader Kim Jong Un for staging a string of weapons tests in recent months. But this approach risks being undercut by the continuing role of Chinese firms, traders and organizations in helping North Korea both import and export military equipment.

U.S. President Donald Trump and Chinese leader Xi Jinping are planning to meet in April, Chinese officials said. Trade, the South China Sea and Taiwan are some of the sensitive topics they might discuss. Photos: AP/Getty

Reports and legal documents released recently by the United Nations, U.S. government and private intelligence firms detail Pyongyang’s extensive use of Chinese firms and North Korean front companies inside China to both sell conventional arms to countries in Africa and Southeast Asia, and to import equipment for its military programs.

To deter China, the administrations of Donald Trump and Barack Obama have fined and imposed sanctions on a number of Chinese firms in recent months.

Last week, the U.S. Commerce Department fined a Chinese telecommunications company, ZTE Corp., $1.2 billion for breaking U.S. sanctions by selling equipment to North Korea and Iran, a charge it acknowledged.

But Trump administration officials have signaled there will be even greater financial pressure placed on Beijing if it doesn’t cut off North Korea, a step that risks Chinese retaliation.

“We are putting the world on notice: The games are over,” Commerce Secretary Wilbur Ross said while announcing the sanctions on ZTE last week.

China’s embassy in Washington didn’t respond to requests for comment on North Korea. Beijing in recent months said it was banning coal imports from the North to comply with new U.N. sanctions.

U.S. officials said Mr. Tillerson would be discussing North Korea at all his stops in Asia, including the issue of “secondary” sanctions against non-North Korean companies that have been aiding Pyongyang.

“All of the existing tools that we have to try to bring pressure on North Korea are on the table, and we’ll be looking to try to see what the most effective combination is,” said a senior U.S. official briefed on the Asia trip.

Republican senators wrote Treasury Secretary Steven Mnuchin last month and called for an investigation into the Bank of China and other Chinese firms for their alleged roles in helping North Korea.

A report released this month by the U.N.’s Panel of Experts documented North Korea’s extensive use of China to evade international financial sanctions and sell weapons.

In a case that particularly alarmed the Trump administration, a North Korean businessman attempted to use Pyongyang’s embassy in Beijing to export a lithium metal that is used to miniaturize nuclear warheads, according to the U.N. report.

The U.N. also said North Korea’s military acquired components for its missile program using Chinese firms. Debris collected from a February 2016 North Korean rocket launch included ball bearings and pressure transmitters. Those materials were sold to North Korea by a Chinese firm, which had originally sourced the components from Europe.

“This company was unable to provide the identity of the purchaser and indicated that the pressure transmitters had been sold in an electronics market,” the U.N. report said.

In September 2016, the U.S. Treasury Department sanctioned a Chinese businesswoman and Communist Party member, Ma Xiaohong, along with her company and three associates, for aiding North Korean firms involved in Pyongyang’s nuclear and ballistic missile programs.

The U.S. and China froze the assets of these entities. The U.S. Justice Department identified another 23 firms that it said were tied to Ms. Ma and her holding company, Dandong Hongxiang Industrial Development Co.

Since then, private U.S. intelligence firms have identified much broader networks involving Chinese companies aiding North Korea.

Sayari Analytics, a Washington-based financial intelligence company, said it found 27 other companies majority-owned by Ms. Ma and Dandong Hongxiang, as well as five ships. Sayari said there are numerous other Chinese business networks collaborating with Pyongyang.

“Ma is just one node in one network supporting one [North Korean] institution,” said Jessica Knight, director of analysis at Sayari. “There are dozens more examples of these Chinese facilitators, some with even more cross-border business than Dandong Hongxiang.”

Ms. Ma hasn’t responded to multiple requests for comment, while representatives of her firm have declined to comment. Diplomats at the North Korean mission at the United Nations didn’t respond to requests for comment.

Current and former U.S. officials said the Trump and Obama administrations have been uncertain of the Chinese government’s role in this support for North Korea.

Some in Washington said Beijing might not be directly involved in this trade. But at the same time, they said successive Chinese governments haven’t shown the political will to crack down on the proliferation.

As a result, the Trump administration is considering pursuing strategies similar to ones the Obama and George W. Bush administrations used to financially isolate Iran with North Korea.

This would include sending Treasury Department officials to China to directly warn local firms about the risks of doing business with North Korea. There is also a belief that sanctioning another Chinese network engaged with Pyongyang, similar to Ma Xiaohong’s, could have a ripple effect across Asia.

“It’s not a foregone conclusion that China’s leaders will shelter North Korea,” said Anthony Ruggiero, a former Treasury and State Department official who focused on North Korea at the Foundation for Defense of Democracies, a Washington think tank.

Still, these officials said using the international financial system to punish Beijing comes with enormous risks. And it could accelerate efforts by the Chinese government to establish a financial system not anchored in U.S. dollars.

Write to Jay Solomon at jay.solomon@wsj.com

Appeared in the Mar. 15, 2017, print edition as ‘Chinese Firms Face U.S. Penalties.’

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2 Responses to “Trump Weighs More Pain for Chinese Firms Found Aiding North Korea — “We are putting the world on notice: The games are over.””

  1. Brittius Says:

    Reblogged this on Brittius.

  2. daveyone1 Says:

    Reblogged this on World Peace Forum.

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