China’s decision to end financial dealings with a key North Korean foreign exchange bank is a “significant” step that may severely punish North Korea for its internationally condemned nuclear ambitions, a Seoul official said Wednesday.

Bank of China Ltd has shut down the account of North Korea’s Foreign Trade Bank, which was hit with U.S. sanctions in March after Washington accused it of helping finance Pyongyang’s nuclear weapons program.

The North’s state-run bank was told its transactions had been halted and its account closed, the Bank of China, the country’s biggest foreign exchange bank, said in a brief statement on Tuesday. It gave no reason for the closure and the bank declined to comment further.

Given that the North Korean foreign exchange bank is its de facto channel to settle financial trade dealings with China, the decision is “a very significant and effective measure,” a Seoul official said.

“Trade with China accounts for almost all of North Korea’s official commerce with foreign countries,” the official said, adding that it is imaginable how severe an impact the latest decision may be to the North.

The closure would be the first openly acknowledged move by an institution in China -- the North’s key backer -- against North Korean interests in the current stand-off, which escalated in February with Pyongyang’s third atomic test.

Washington imposed sanctions on the North Korean organization, Pyongyang’s primary foreign-exchange bank, after the latest nuclear test.

It has urged China -- which is the North’s largest trade partner and biggest food and energy supplier -- to do more to contain its smaller neighbor.

When U.S. Secretary of State John Kerry visited Beijing last month, the two countries vowed to work together to try to ease tensions on the Korean Peninsula, but gave no details.

Kerry said there would be “very focused continued high-level discussions about the ways to fill in any blanks” and that he wanted to ensure pledges were “not just rhetoric”.

U.S. Treasury undersecretary David Cohen also visited Beijing in March soon after the new sanctions were announced to discuss how they might be implemented.

Beijing has supported separate United Nations sanctions on the North, which were also expanded after the February test.

But it has also said sanctions are not the “fundamental way” to resolve the crisis, and has tended to avoid antagonizing Pyongyang for fear of provoking an over-reaction and destabilizing the region.

China’s overarching aim with North Korea is to avoid provoking instability that could bring refugees flooding across the border, an enhanced U.S. military presence in the region, or ultimately even a united pro-U.S. Korean Peninsula.

That calculus was unlikely to change even if China took some steps in support of Western-backed sanctions, said Stephanie Kleine-Ahlbrandt, the Beijing-based director of Northeast Asia for the International Crisis Group.

“I think that this is a highly visible thing that will get them a lot of points with the Americans, with the international community,” she said.

“But I think it’s impossible to judge its significance until we understand what it actually entails.

“China is simply not going to go very far because it prizes stability over denuclearization, and it has different aims on the peninsula than the U.S. does.”

In one indication of China’s support for North Korea, trade between the two countries nearly tripled in the five years to 2011 to $5.6 billion, figures compiled by the South Korean government showed last December.



From news reports