ANNUAL REPORT

26
Korea, designating Dandong Hongxiang Industrial Development
Co. and four Chinese nationals who directed and managed
the firm for sanctions evasion activities and froze their
assets. In addition, the U.S. Department of Justice indicted the
individuals and entity for sanctions violations, conspiracy, and
money laundering. It also confiscated funds in 25 Chinese bank
accounts allegedly belonging to the firm and its front companies.
These actions could compel Beijing to increase regulatory
measures on Chinese firms doing business with North Korea,
but such measures will probably be constrained by China’s desire
to support the Kim regime.
• China claims the decision by South Korea and the United
States to deploy the U.S. Terminal High Altitude Area Defense
(THAAD) ballistic missile defense system to South Korea to defend
against North Korea’s increased nuclear and missile capabilities
is a direct threat complicating its own security environment.
Beijing has used the announced deployment to obstruct
international and regional cooperation on North Korea and to
reduce certain areas of economic cooperation with South Korea.
Over the near term, THAAD is likely to encourage China to
move closer to North Korea, while increasing frictions between
China, the United States, and South Korea.
• China’s close economic ties with North Korea are unlikely to diminish
significantly in the near term. In 2015, China accounted
for approximately 91 percent of North Korea’s legitimate foreign
trade of $6.25 billion (excluding trade with South Korea). One of
North Korea’s main sources of hard currency (which is not covered
by sanctions) is from foreign labor, which generates revenue in the
low hundreds of millions of dollars annually, mainly in China and
Russia. According to an estimate in August 2016, approximately
70,000–80,000 North Korean workers are employed in China, and
around 34,000 North Koreans work in two Chinese border cities,
with this number set to rise in the coming years.
• As the North Korean threat increases, placing U.S. alliances
and security interests at risk, China’s skepticism about the U.S.
role in the region poses obstacles to the productive engagement
necessary to achieve the goal of denuclearization of the Korean
Peninsula. Chief among these obstacles is Beijing’s view that
U.S. policy on North Korea is designed to strengthen U.S. alliances
to contain China, and that U.S. military exercises with
South Korea incite Pyongyang to conduct further provocations.
Chapter 4: China and the U.S. Rebalance to Asia
Since its inception in 2011, the Rebalance to Asia strategy has
been a defining feature of U.S. international relations and of U.S.-
Asia Pacific and U.S.-China relations in particular. Following on efforts
begun under the previous administration, the Obama Administration
adopted this strategy in order to bolster U.S. engagement
and leadership in a region of growing importance to U.S. interests,
and thereby promote a rules-based international order featuring security,
shared economic prosperity, and good governance. Although