July 13, 2017 / 5:05 PM / 3 months ago

Exclusive: U.S. prepares new sanctions on Chinese firms over North Korea ties - officials

FILE PHOTO: Flags of U.S. and China are placed for a meeting in Beijing, China June 30, 2017. REUTERS/Jason Lee

WASHINGTON (Reuters) - Frustrated that China has not done more to rein in North Korea, the Trump administration could impose new sanctions on small Chinese banks and other firms doing business with Pyongyang within weeks, two senior U.S. officials said.

The U.S. measures would initially hit Chinese entities considered “low-hanging fruit,” including smaller financial institutions and “shell” companies linked to North Korea’s nuclear and missile programs, said one of the officials, while declining to name the targets.

It would leave larger Chinese banks untouched for now, the official said.

The timing and scope of the U.S. action will depend heavily on how China responds to pressure for tougher steps against North Korea when U.S. and Chinese officials meet for a high-level economic dialogue in Washington on Wednesday, the administration sources told Reuters.

President Donald Trump and his top aides have signaled growing impatience with China over North Korea, especially since it last week test-launched its first intercontinental ballistic missile, which experts say could put all of Alaska in range for the first time.

U.S. officials have also warned that China could face U.S. trade and economic pressure - something Trump has held in abeyance since taking office in January - unless it does more to restrain its neighbor.

The so-called secondary sanctions now being considered are a way for the United States to apply targeted economic pressure on companies in countries with ties to North Korea by denying them access to the U.S. market and financial system.

Word of the sanctions plan comes as U.S. ambassador to the United Nations Nikki Haley seeks to overcome resistance from China and Russia to a U.N. Security Council resolution imposing stiffer international sanctions on Pyongyang.

The targets now being weighed for sanctions would come from a list of firms numbering “substantially more than 10” that Trump shared with Chinese President Xi Jinping at a Florida summit in April and which U.S. experts have continued to compile for review, according to one of the officials.

The administration has yet to see what it considers a sufficient response from China.

“The president is losing patience with China,” the official said, adding that there would be a “more aggressive approach to sanctioning Chinese entities ... in the not-too-distant future.”

The White House declined comment.

In Beijing, Chinese Foreign Ministry spokesman Geng Shuang reiterated China’s opposition to unilateral sanctions outside the framework of the United Nations and that China has been fully enforcing U.N. resolutions.

Getting China’s help on passing U.N. resolutions and then putting unilateral sanctions on China was like “abandoning one’s benefactor upon achieving one’s goal”, Geng added.

“What China enforces is United Nations resolutions, not the domestic law of certain countries.”

U.S. and U.N. sanctions have failed to deter North Korea from pursuing its nuclear and missile programs, and on Friday, it justified its ICBM test was an exercise of its legitimate right to self-defense.

The North’s KCNA news agency quoted an unidentified foreign ministry spokesman as denouncing U.S. efforts for a new U.N. resolution as a “racket” fabricated by the United States to evade its responsibility for having driven the North to “bolster its nuclear force.”

“Should the U.N. Security Council adopt another ‘resolution on sanctions,’ this will trigger corresponding measures,” KCNA cited the official as saying. It did not elaborate on the measures.

HALEY‘S WARNING

Though the sources stressed that no final decisions had been made, they said China, North Korea’s main trading partner, was crucial to pressuring Pyongyang to prevent it from achieving the capability of striking the United States with a nuclear-tipped missile.

During a U.N. Security Council meeting last week, Haley threatened secondary sanctions if the council could not agree on new sanctions – though she did not cite China by name.

In late June, Washington imposed secondary sanctions on two Chinese citizens and a shipping company for helping North Korea’s nuclear and missile programs and accused a regional Chinese bank, the Bank of Dandong, of laundering money for Pyongyang.

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Fresh U.S. sanctions would be aimed at sending a message to Beijing of Washington’s resolve to act further on its own.

But they would stop short, at least for now, of the kind of broad “sectoral” sanctions Trump’s predecessor, Barack Obama, secured through unilateral and international action against Iran to pressure it into negotiations to curb its nuclear program.

Cui Tiankai, China’s ambassador to Washington, said on Monday that secondary sanctions were “not acceptable.”

”Such actions are obstructing cooperation between China and the U.S. and lead to questions about the real intentions of the U.S. side,” according to a transcript of his remarks from the Chinese embassy.

The threat of further secondary sanctions on Chinese companies could complicate next week’s U.S.-China Comprehensive Economic Dialogue, an important forum for narrowing differences between the world’s two biggest economies.

While preparations for fresh sanctions are moving forward, tangible new steps by China could prompt Washington to put the measures on hold, the U.S. sources said.

“They’d have to show they’re really serious,” the second official said. “We’re not going to be paralyzed into inaction.”

Trump pledged repeatedly during his election campaign to get tough on Chinese trade practices deemed unfair to the United States, but his rhetoric softened after the friendlier-than-expected April summit with Xi.

Shortly after their meeting, Trump said he had told Xi that China would get a better trade deal if it reined in North Korea.

But in recent weeks, Trump has fired off tweets denouncing China’s trade with North Korea and cast doubt on whether Beijing was doing enough to counter Pyongyang.

Reflecting growing concern about North Korea on Capitol Hill, two members of the U.S. Senate Banking Committee, Democrat Chris Van Hollen and Republican Pat Toomey, announced on Wednesday they would soon introduce legislation for North Korea modeled on the Iran secondary sanctions laws passed by Congress.

Reporting by David Brunnstrom and Matt Spetalnick, additional reporting by Michelle Nichols in New York and Patricia Zengerle in Washington; Editing by Yara Bayoumy and Clarence Fernandez

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