Beijing has come under fresh pressure to get tougher with its long-time ally Pyongyang following reports that bank accounts holding slush funds belonging to North Korean leader Kim Jong-un have been found in Shanghai and other Chinese cities.
The accounts contained "hundreds of millions of [US] dollars", South Korea's Chosun Ilbo reported yesterday, citing government sources in Seoul, but said they were excluded for unidentified reasons from financial sanctions under a United Nations Security Council resolution adopted last Thursday.
The latest sanctions were imposed in response to Pyongyang's third nuclear test, conducted last month.
A foreign ministry spokesman said Beijing was unaware of the report, but added China had already expressed its position concerning sanctions on Pyongyang.
"As a permanent member of the UN Security Council and a responsible member of the international community, China will handle the issue in accordance with international norms," he said in a faxed statement.
The report said South Korean and American officials had urged Beijing to include the accounts in the latest sanctions, but Beijing had refused.
"Following North Korea's third nuclear test, China has demonstrated willingness to take part in sanctions against the North," the report quoted a source as saying. "But Beijing is reluctant to touch North Korea's real Achilles' heel."
The report said the investigation by South Korea and the US had lasted for several years, and that some of the accounts were set up in the days of former North Korean leader Kim Jong-il.
The Shanghai headquarters of China's central bank declined to comment yesterday and it was not known which Shanghai-based banks were involved.
Several bankers said they believed that the Shanghai banks referred to in the report not only referred to Shanghai-headquartered banks, but also to the Shanghai branches of banks based in other parts of the country, and foreign lenders' Shanghai operations.
"It is up to the central bank's anti-money-laundering unit to investigate suspicious capital flows and deals," said a banker close to the People's Bank of China. "But given the political implications of this matter, the central bank would have to receive direction from the top leadership before taking concrete steps in conducting probes."
South Korean authorities believe freezing the bank accounts would have a stronger impact than the freezing of Kim Jong-il's accounts at Macau's Banco Delta Asia in 2005, because they hold much more money.
Critics say Beijing's too-friendly approach has failed to stop Pyongyang from making provocative moves.
"Beijing has to be tougher, as Pyongyang has gone too far," said Professor Zhang Liangui, an international strategy specialist at the Central Communist Party School.
Professor Du Jifeng, from the Chinese Academy of Social Sciences, said Beijing would face international pressure to impose more sanctions on Pyongyang following the report about the bank accounts, and this would create a dilemma for China's leaders.
"Beijing would be reluctant to take action if the bank accounts were personal accounts of Kim Jong-un," he said. "Beijing is worried that it could damage personal ties with the North Korean leader."
Beijing was concerned that Pyongyang would be prompted to take more provocative action if China adopted a tougher approach, Ji said.
Cai Jian, a professor of Korean studies at Fudan University, said Beijing would be cautious and verify the purpose of the slush funds before taking any action against Pyongyang.
"Beijing needs to prove that the funds are related to missile and nuclear development before imposing sanctions," he said, adding that China did not want to make East Asian security conditions any more complicated.
Additional reporting by Daniel Ren