ANNUAL REPORT

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ty 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.
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