NEW YORK, January 25, 2018 — Experts unpack key aspects of the critical and complicated China-North Korea relationship. Speakers included John Park, director of the Korea Working Group and adjunct lecturer in public policy at Harvard Kennedy School, and Michael Swaine, senior fellow at the Carnegie Endowment for International Peace. The conversation was moderated by Diplomat in Residence and Senior Fellow at the Asia Society Policy Institute Daniel Russel. A full transcript of the discussion can be found at the bottom of this page. (1 hr., 23 min.)

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China and North Korea are nominally allies, but relations between the two neighbors – always difficult – have deteriorated as North Korea has accelerated its nuclear and ballistic missile development under Kim Jong Un. Over the past year, Kim has deliberately timed his nuclear and ballistic missile tests to coincide with high-profile Chinese events such as the BRICS summit in Xiamen, the Belt and Road forum in Beijing, and the Xi-Trump Mar-a-Lago summit. Yet, North Korea is economically dependent on China, which currently accounts for over 90 percent of its total trade volume and most food and energy imports. Although Beijing has tightened sanctions on North Korea, China remains an economic lifeline and has resisted placing regime-threatening pressure on Pyongyang.

Does the solution to the North Korea threat run through Beijing? Who really holds the upper hand in the Sino-DPRK relationship? Could Xi Jinping, who recently further strengthened his domestic grip on power, bring Kim Jong Un to heel if he wanted to? Or do socialist ties and North Korea’s value as a buffer state outweigh the risks of a defiant nuclear neighbor?

This Asia Society Policy Institute panel discussion will outline the historical context of North Korea-China ties, and unpack key aspects of this critical, but often misunderstood relationship. Panelists will explore the economic, political and military relations between these “frenemies” and the implications for U.S. policy in the aftermath of the Trump-Xi Summit in Beijing.

Speakers

John Park is an Asia security analyst at the Harvard Kennedy School, where he serves as Director of the Korea Working Group and Adjunct Lecturer in Public Policy. He was the 2012–2013 Stanton Nuclear Security Junior Faculty Fellow at MIT’s Security Studies Program. He previously directed Northeast Asia Track 1.5 projects at the U.S. Institute of Peace. Prior to that he worked at Goldman Sachs and The Boston Consulting Group. He regularly provides commentary on CNN, CNBC, BBC, and Bloomberg and has written for The Wall Street Journal, The New York Times, and The Financial Times. Dr. Park received his M.Phil. and Ph.D. from Cambridge University, and completed his pre-doctoral and post-doctoral training at Harvard Kennedy School’s Belfer Center.

Michael Swaine is a Senior Fellow at the Carnegie Endowment for International Peace and one of the most prominent American analysts in Chinese security studies. Formerly a Senior Policy Analyst at the RAND Corporation, Swaine is a specialist in Chinese defense and foreign policy, U.S.-China relations, and East Asian international relations. He has authored and edited more than a dozen books and monographs and many journal articles and book chapters in these areas, directs several security-related projects with Chinese partners, and advises the U.S. government on Asian security issues. He received his doctorate in government from Harvard University.

Daniel Russel (Moderator) is Diplomat in Residence and Senior Fellow at the Asia Society Policy Institute. A career member of the Senior Foreign Service at the U.S. Department of State, he served until recently as the Assistant Secretary of State for East Asian and Pacific Affairs. Prior to his appointment as Assistant Secretary, he served at the White House as Special Assistant to the President and National Security Council’s Senior Director for Asian Affairs. During his tenure there, he helped formulate President Obama’s strategic rebalance to the Asia-Pacific region.

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Panel Discussion Transcript

Daniel Russel: Thank you, Tom. Welcome, everyone. Welcome to this latest round of Asia Society Policy Institute conversations on North Korea. Please remember to turn off your phones. We will hear from our panelists up until about 7:30. Then we'll open the floor to questions and we will wrap up at 8:00.

Tonight, our goal is to challenge some of the assumptions and to dig down on some of the issues pertaining to the relationship between China and North Korea. That means their historical baggage and their ideological background. It means the military relationship and strategic interests.

It means the enigma that is North Korea's economy and how China plays into that. And the question is who actually has leverage over whom? I'll confess that is a hard riddle to work out.

That relates to what we should expect in terms of sanctions and pressure and the possibility that will achieve something in terms of negotiations and diplomacy and the prospect of accomplishing anything through that.

And then there's the risk of military action or some other intervention on the Korean Peninsula. I won't burn up time supplementing what Tom said by way of a good introduction other than to say Michael and John are two of the people whose analysis and judgment I put the most stock in. I'm delighted they're with us tonight.

I would like to start with Michael while your voice holds out. I'll ask you to tell us what you think we need to bear in mind in the big picture when we think about China's relationship and their history with North Korea.

Michael Swaine: Thank you, Danny. Thanks to Tom. I have a head cold. It's kind of slowed me down. If I make any errors, I blame the medication. [Laughter]

I would like to give you a sense about what I think is China's strategic calculus and its interests and policies in looking at the Korean Peninsula and the relationship with the DPRK in particular.

As we all know, China's relationship with Korea and the Korean Peninsula, North and South, has changed markedly in important ways since the end of the Korean War. At that time, China was a staunch ally of North Korea providing critical assistance in a variety of ways. It was an implacable opponent to the United States and the South Korean government.

Today, I would say it's a qualified supporter of North Korea. It's generally cooperative and has good relations with the South Korean government. Of course, it's much more moderate with the United States than it ever was during the Cold War.

Despite those changes, however, Beijing's basic interests on the Korean Peninsula have essentially remained ever since the beginning of its relationship since the PRC came into power after the Korean War.

One interest is to prevent the resumption of armed conflict on the peninsula for a variety of reasons. 

Second, is to prevent the messy collapse of the DPRK government and regime. 

The third is to prevent or discourage the unification of the Korean Peninsula under strong US influence and involving the continued presence of US forces on the peninsula. 

These three imperatives for China remain today. They have changed how China has sought to advance these interests. They have been there, though.

Since the 1980s and '90s, with the end of the Maoist regime, the advent of reform and the end of the Cold War and the emergence of North Korea's nuclear weapons program, Beijing has adopted a more complex strategy toward the Korean Peninsula.

China has tried to defend those three interests I just mentioned and to support its own economic development though four initiatives.

It encourages Pyongyang to follow its own reform path. It has given economic assistance to the North Korean regime. It's encouraged the North Korean regime to uphold international agreements it has reached with the United States and China and other countries to end its nuclear weapons program. And it has sought to draw South Korea closer to itself to improve its political and economic relationship with South Korea. \

The Chinese have done the latter in particular because I think the Chinese see that the Korean Peninsula eventually, if it's unified, will be unified largely under the aegis of the South Korean government. In other words, the North Korean government will not succeed in a unification process.

Also, I think the Chinese look at South Korea very differently from Japan, for example. They see Japan as more tightly bound in the alliance relationship with the United States. Although South Korea is a strong formal ally of the United States, the Chinese don't look at South Korea the same way in that alliance relationship.

China has seen more flexibility in South Korea, in part reflecting the South Korean domestic political situation. China has sought to try to woo South Korea in a variety of ways.

Also, as South Korea's economy has markedly improved, China wants to benefit from that and exert influence over South Korea.

These policies remain in place today from the 1980s and '90s. They have evolved further in the 2000s. As North Korea has resisted reform, it has resisted opening up in the way that the Chinese have tried to urge it to do so. North Korea has shown a stubborn commitment to developing nuclear weapons and defied Beijing and sometimes insulting the current leadership of China.

Today, under Xi and a more assertive China, Beijing has become far less supportive of North Korea. Xi has refused to meet with Kim Jong-un, which is unprecedented. And they have supported the stringent Security Council resolutions that have been placed on North Korea for its nuclear program.

At the same time, Beijing has resisted applying a total embargo of North Korea or cutting of political and diplomatic ties entirely given the concerns I mentioned at the beginning.

As the crisis on the nuclear front deepens with North Korea, Chinese interests are increasingly driven into a dilemma in dealing with this situation. There are three that I'll point to.

The first is that North Korea's behavior and continued provocations presses Beijing all the more to agree to sanctions, but it doesn't want to lead to the collapse of the North Korean regime. It doesn't know what that outcome will be.

It's not because I think they have close ties to the North Korean regime like they did in the past, though some the Chinese government still do believe that. But I think it's more pragmatic than that.

The pressure that Washington puts on the Chinese adds to this.

The second is that North Korea's behavior pushes South Korea closer to the United States as North Korea becomes more threatened. South Korea becomes more receptive to ballistic missile defense systems that really trouble the Chinese a lot and lead the Chinese to put pressure on South Korea. That undermines their objectives to improve relations with South Korea. That creates basis of creating light between the United States and South Korea.

Third, North Korea's behavior raises the importance of China to talk with the United States and South Korea about contingencies and the dangers presented by the current nuclear situation. Yet Beijing resists doing that. It's caught between understanding the importance of getting an understanding between the United States and South Korea but not willing to engage in official discussions.

They don't want to signal to North Korea that they are anticipating the possible collapse of the regime. They also don't want to signal to the United States and South Korea that they might accept certain policies that could lead to the collapse of the regime. They also don't want to avoid seeming inconsistent when they're talking to the United States and South Korea about the possible collapse.

These have been real dilemmas for China and have created a debate within China in dealing with North Korea. There are those who believe North Korea has fundamentally betrayed China's trust and goodwill in dealing with North Korea, so they want a fundamental shift. They want to move more in the direction of the United States and South Korea. But that is not the majority view.

The second side are those people who believe that North Korea has been compelled to adopt the policies it has because of the insecurity it feels about US pressure against it and the US presence on the peninsula and their forces. And these things need to be addressed in an important way before North Korea will consider giving up its nuclear weapons.

There is also a deep suspicion towards the United States about its ultimate objectives. Does it want de-nuclearization or regime change that will lead to a larger US presence on the Korean Peninsula?

This is still the main view in China, in my opinion. But I think it is changing. You can see that change because the Chinese allow public statements by scholars now that are directly critical of Chinese policy in the PRC media, talking about this Korean situation and arguing that the Chinese need to get much tougher in dealing with North Korea.

What could change the situation? There are many different things that could happen of course. We're seeing this unfold on a day-to-day basis.

The United States could decide there is a kinetic action that is possible that could change the situation in its favor in the US, South Korea, and Japan's favor. It would depend on how it would occur and if it seemed to be unprovoked and the United States just decides it cannot let North Korea even possess the possibility of a nuclear weapon and it will act militarily to stop it, as Trump has indicated he would do, I think the Chinese would resist the US position. They would see it as pushing towards war.

However, if the North Koreans would do something that is very clearly provocative on their side beyond what we've seen today -- and the North Korean minister has even threatened they could explode a nuclear weapon over the Pacific Ocean -- China's calculus would probably fundamentally change and they would be more receptive to taking action against North Korea that would hopefully avert a war on the Korean Peninsula. 

The Chinese are in a tough spot. They are constantly trying to tack between their interests with the United States and South Korea on one hand and their fears that are being generated by the North Koreans on the other hand. We have not seen where this is going to go. I would not predict where it would go in any sure way.

Much depends on the actions that are outside of China or even outside of the United States. I think North Korea still remains in the driver's seat in this situation. I'll stop there.

Daniel Russel: That was fantastic. Thank you. John, let's shift gears. You've done a lot of work on the economic situation. I want to hear about that. Is there anything you can add in terms of what the DPRK perspective looks like in terms of the relationship with China?

John Park: First, thanks to Danny and the Asia Society for bringing me here today. The title of today's talk, "Bitter Allies: China & North Korea," led me to a conclusion. Before jumping to the conclusion, I'll give you a road map, incorporating some of the things that Danny requested and some of Michael's highlights.

I will end with a conundrum and a contradiction. There are three areas I will cover. First is a macro picture, which is China's view of history and how they've been traumatized by that history starting in the late 1980s.

The micro picture is the rise of North Korean Incorporated. That's the regime's web of these elite trading companies doing business on behalf of the regime that has enabled it to adapt to sanctions.

Finally, I'll canceled with implications for the core countries involved.

In the macro picture, North Korea's history is a near death experience. From the 1980s, the Soviet patron starts to contract and the North Korean economy contracts dramatically. We also see the first being diplomatic approach to dealing with North Korea in South Korea's policy.

This is a phenomenal strategy. South Korea at that time was the darling in the international community at the height of what we would call the soft power that South Korea is projecting. With that, they brokered these deals with the Soviet Union and China still during the Cold War. No one knew about the rapid collapse of the Soviet Union at this time.

In the 1980s, South Korea brokered these agreements with Moscow and Beijing where they cut off their relations with North Korea in return for trade credits, assistance with failed economic reform programs [from South Korea]. South Korea's ability to extend these economic trade credits and other facilities were important catalysts at that time.

From North Korea's perspective, as it relates to China, this is a period where North Korea views this as a great betrayal. And they severed ties with China. They started doubling down on plutonium. This is the period where, in recognition for this betrayal, this was the period where North Korea sustains these incredible hardships.

The Great Famine happens because of natural disasters as well as the economic transactions. The 1990s for North Korea was a near-death experience. During that time period, North Korea was put on a death watch. Everyone anticipated that North Korea would be gone by the late 1990s and the early 2000s.

The overall picture that comes out, though, is that the Communist Party of China is trying to rebuild relations with North Korea after this period. There is a decision to normalize relations with North Korea. From a Chinese calculus, there is no standalone North Korea or South Korea policy. It is framed in the context of a Korean Peninsula policy.

To have stability on the Korean Peninsula, as China and South Korea economic and political relationships grew and thrived, the view of the China and North Korea relationship was very fragile. If you think of architecture, the structured started to wobble. You see the effort on the Chinese side to rebuild that relationship.

The greater North Korea fell into areas of weakness, the more China could contribute. You see strategic aid given to the North Koreans. They were essentially bailing out the Workers Party of Korea.

Fast forward to the Sunshine Policy period. North Korea stumbles along. Then we have two back-to-back progressive governments in South Korea. The Sunshine Policy enables North Korea to more sustainably recover. This was a unique period.

If you think of the Chinese approach to the big picture here, trying to build the relationship in this pillar with North Korea, the Sunshine Policy was a model from a Chinese think tank perspective which was seen as a viable model.

But as we see that policy come to its end with the voting in of a conservative government, the Chinese view was that the notion of the model was right but the implementer was too fragile. This is a calculation by the Communist Party of China to build up the institution of the Workers Party of Korea so they don't have to deal with the Kim family anymore. 

There was a critical visit that the then-premier Wen Jiabao had to Pyongyang in 2009. He signed three agreements with Kim Jong-il at that time. The popular press saw it as vestiges of propaganda. But the first economic development deal and the second was education and the third was tourism. Those became gateways.

The messaging from the Chinese side was saying under Chinese law it's legal to do business with the North Koreans. If you look at those three agreements, they become gateways.

When the Chinese authorities are pushed and pressed, you have to implement sanctions more. Some of these are classified as economic development. Member-states are not prohibited from engaging in economic development and humanitarian aid with North Korea.

Chinese citizens are the only ones who can go to North Korea without a visa right now. This idea of fostering tourism is a free flow of goods across the border.

With education, there are training permits that are classified as educational programs. This a long-term game plan.

Let's go to the micro picture and the rise of North Korea Incorporated. You see the North Korean regime who have long been procuring and doing business. But they are now incorporated in a fundamentally different way. North Korea has migrated into the Chinese marketplace at the invitation of the Chinese Communist Party.

This was not to procure banned items for a nuclear missile program. A vast majority of the trade between China and North Korea have been benign goods. But when you build a commercial channel, as legitimate goods flow through, you can use it to bring in illicit goods as well.

If you look at the circuitry that goes into the development phase, the smaller the piece, the bigger the bang you get where the Koreans are. These procurement aspect is a small percentage of overall trade, but focus on the mechanism.

There is also adaptation. Sanctions have impacted key areas. But if you think of sanctions as antibiotics, in key instances, the North Korean regime is resisting key types of measures, in key instances the North Korean regime is exhibiting superbug traits.

That's how the original measures are no longer feasible.

By being in the Chinese marketplace, North Korea can use more frequently and in greater scale, Chinese private companies that act as middlemen.

With sanctions, you are trying to elevate transaction costs vis-à-vis a target so it becomes prohibitively expensive and damaging if you engage in business with that target. But with some of these Chinese private companies that are tied with private party officials and law enforcement, they have crucial leverage.

As you apply more sanctions in a specific area, these Chinese companies view it as a business opportunity. They view the elevated risk as a way to proposition North Korean clients. "I can get this item for you, but it will cost you more and the item itself is more expensive."

In market parlance, that leads to efficient markets. We see North Korean entities doing business in the Chinese marketplace and getting better because of this monetization of risk phenomenon. Keep that conundrum in mind.

The third part I want to zero in on are the implications. All these things happen, so what? The United States administration right now has formally labeled their strategy maximum pressure and engagement. We don't hear about the engagement part, but we hear about the pressure. Economic pressure is in overdrive right now.

As we see more economic pressure increasingly going away from targeted sanctions and going towards wholesale economic embargoes, we see this focus on the idea that sanctions don't work until they do.

Right now, the problem is the North Korean program is so advanced that their progress is measured in months whereas some of these measures would take years. North Korea could finish that last assembly component and go into mass production of a nuclear arsenal already.

That intensity may be too late.

As we get to that point much earlier than anticipated, the concern is it leads us to the path of focusing more and more on military pressure as the last policy tool. If you run through the economic pressure options, the military pressure one is the last policy option standing.

Let me shift to South Korea. South Korea has lost its monopoly on sunshine. If you look at China's Sunshine Policy, it's unmatchable. You see the North Korea trading company managers embedded in all of the Chinese marketplace.

Secondly, the fragility from a Chinese perspective, the instability of democracy, you go from polar extreme to polar extreme (political transitions between liberal and conservative governments in Seoul). 

Lastly, there is the idea that when you look at the institution building of the Workers Party of Korea, that is a very important objective for the Communist Party of China. It's something other countries can't commit to on the scale that China is.

Finally, there's the contradiction. If you look at it in terms of something of an equation, two p is greater than six p. The two-party approach for the primacy and priority of China building up North Korean regime has become the front and center game plan for China.

There is a great deal of tension and animosity in terms of North Korea taking advantage of some of these opportunities. But in terms of the broader strategy of trying to boost stability, the two-party is still the number one approach to dealing with North Korea.

That has led to the two p being greater than the six p. If you are North Korea, why would you commit to a de-nuclearization deal if all of the economic and political benefits are given to you without de-nuclearization? That's the contradiction. Unless we resolve that, we will have this insulation. You have to consider these broader trends in the long shadow of history.

Daniel Russel: That's fascinating. Your conundrum about sanctions smartening up North Korea Inc. is just another indication of how those wily capitalists are diabolically clever. We have to be on the lookout for them. [Laughter]

Let me ask Michael a question. John laid out a case as to the degree to which North Korean senior economic and commercial officials are embedded in China. That ought to translate into leverage that China has over the DPRK. Although they may have strategic interests in avoiding chaos, certainly in avoiding war and avoiding unification on American-friendly terms.

What I keep stubbing my toe on is why a strong, proud nation like China, like the Communist Party, sit still for so much embarrassment and insult? There were a series of North Korean provocations -- nuclear tests as well as ballistic missile tests -- that coincided with important events, including the most grievous offense against 1.3 billion Chinese people which was to conduct a nuclear test during Lunar New Year's. That was really unforgiveable.

And then, oh, yeah, they murdered Kim Jong-nam who was ostensibly under China's protection. They murdered quite a few of the Chinese sympathizers in the DPRK system.  How is it possible that China is consistently turning the other cheek and, at the same time, not applying the implied leverage that John is describing? 

Michael Swaine: The Chinese constantly grapple with these dilemmas and this situation.  I think John is right in the sense that the Chinese distinguish between the Kim clan and the DPRK as a regime and the purposes of that regime in serving their own, the Chinese, interests. 

I don't think most Chinese leaders would shed a tear if the Kim clan was destroyed tomorrow. But I think they would get very anxious if that required a collapse of the regime entirely with the very uncertain outcomes that would come from that.

To a certain extent, they do have to “Chi Ku” eat bitterness in looking at and dealing with the North Korean regime of a short-term basis. But as long as they remain concerned about the outcome of a very tumultuous Korean Peninsula and the posture that South Korea might take in trying to unify that peninsula and the role of the United States therein, China will continue to take the bitterness to some degree, at least from the larger perspective.

At the same time, they will not give Kim Jong-un, Kim 3.0, any kind of face in the way that they deal with him. And they have given him no face in their dealings with him.

That's where they are. I think many Chinese recognize that they're caught in this situation where they can't be very decisive about any of these things. They are playing the long game, to a certain extent, as John suggests.

One issue for me in listening to John's analysis of this is to understand the degree to which the kind of integration of North Korean entities in the Chinese system exists independently of the PRC government and the PRC regime. And the degree to which the PRC regime is knowledgeable of and is frustrated by these integrated elements or the degree to which it actually looks the other way deliberately and says, "Well, this is still the parachute for the North Koreans. We'll let this stuff go on."

In the last few rounds of resolutions, it seems the Chinese are becoming less tolerant and more frustrated. But John may disagree.

Daniel Russel: Let's pursue that thought. The Chinese closed-circuit television and monitoring system is slightly underdeveloped in the northeast but it's moving towards absolute control. It looks unlikely that North Korean commercial managers are embedded throughout major cities in China, and the authorities are oblivious.

You're also describing a very heavy economic dependency on China. That seems to translate into what most American officials have long believed, which is China has a great deal of leverage. They don't have much influence on North Korea because they don't use their leverage, but they do have leverage. 

You also see a complete halt of the import by China of North Korean coal and iron or minerals, a radical diminution of garments and seafood as well as exports of oil. Maybe you can tell us more about the degree to which China is observing the sanctions. 

How do you square that circle? 

John Park: Two immediate responses. One, with respect to the coal trade and the statistics and the oil as well, there are the Chinese government statistics which many analysts view as heavily politicized. If there is pressure from Washington, miraculously the month before there was a much larger reduction in trade. 

We're also seeing smuggling. The Wall Street Journal reported that yesterday, Japanese surveillance planes observed a North Korean freighter taking on some oil. When you look at that coping mechanism, there are efforts ongoing, the scale of which is surprising.

We knew smuggling was going on, but we heard about small vessels and a few barrels of oil. The high quantity of these transactions led to some aspect of stockpiling. But they're using large freighters, so you see the adaptation.

The smuggling component can be seen as leakage. If you're trying to increase the economic pressure in the marketplace, if you reduce quantity, price goes up. You're incentivizing risk taking. It's not to say we should abandon the measures, but you have to factor that turbulence in and adapt how you respond to that.

Secondly, right now for the Chinese authorities to implement some of these reductions in the purchase of North Korean coal, it's convenient because the Chinese economy on the provincial side is depressed right now. When North Korean coal came online in the second half of the 2000s, the economic development of these Chinese provinces was fueled by firing up the steel plants.

Internally, you saw the promotion of those party officials to the big leagues in Beijing. You saw this connection between these very profitable business operations that leads you down this paper trail of how the heck did the North Koreans start producing coal in those volumes?

We knew they had all of that coal all the way back to the Japanese colonial period. But the prognosis was it was too expensive to get out. The research shows that you have provincial Chinese state-owned enterprises mining using Chinese funds to develop North Korean mines. Then the coal was privatized. 

Global commodity prices were at historic highs at that time. Those individuals made a lot of money. That gives the sense that it's not just the North Koreans benefiting from this trade. And because of the decrease of economic activity in China and less need for the product in the steel mills, it's convenient to drastically reduce coal imports now.

Daniel Russel: There is a dramatic reduction. If North Korea is dependent on the movement of primary resources like coal and gold and iron ore as well as oil, which is something that can be monitored and can be intercepted, then it would stand to reason that the Chinese are able to shut down that in significant quantities.

Moreover, my recent experience visiting these different Chinese provinces and talking to local officials, we had a program with Ri Jong Ho, a former economic official from North Korea who said the purge of Jang Song-Thaek along with thousands of fellow travelers or subordinates has robbed Chinese businessmen of partners and made it infeasible for Chinese to either do business inside North Korea or for North Koreans to do business along the border area there.

There are a lot of projects that are frozen because nobody has confidence that they can get it.

Michael Swaine: Does everyone know who he's talking about? 

John Park: Jang Song-Thaek was the uncle of Kim Jong-un through marriage. He is a very important protagonist in North Korea Incorporated because he developed the system.  The origins are actually North Korean state trading companies leveraging off of Japan in the late 1980s. 

That is absolutely true. After he was put on charge and tried and executed, his network were brought to Pyongyang. They were all vetted. You saw disruption in business activities for a time.

But one of the things that is unique about this man is he developed these political relationships with senior Communist Party of China officials and then monetized them. It's difficult to replace someone like that.

Daniel Russel: He also demonstrated that nobody wants to be number two in a one-man system. 

Michael Swaine: And not to be too close to the Chinese now. 

Daniel Russel: Let's pick up on that point. Not only was Jang Song-Thaek and his network exterminated, not only has Kim Jong-un refused to receive senior envoys from Beijing, but when he has accepted them as in the recent visit, he wouldn't meet with them personally. 

Last time I was in Beijing, my Chinese friends who handled North Korean affairs were saying they weren't even served a glass of water, the ultimate insult in Asia. 

There is a lot of bile in both directions. Let's look at the military side of it. The Chinese trained senior leadership in the Korean People's Army no longer with us. 

Michael, you have a lot of experience with the PLA, the Chinese military, current and retired. Can you give us a sense under what circumstances they might consider intervening in the Korean Peninsula, if any? Or what kinds of planning and contingencies would you suspect the Chinese themselves are doing?

I guess the $64 million question is what kind of reaction, other than a stern talking-to from the podium, what kind of reaction would you expect from the Chinese military if the Trump administration chose to take some kind of kinetic action against North Korea?

Michael Swaine: Simple questions. [Laughter]

I think the Chinese military looks at this problem in ways that are quite similar to how the Chinese party leadership looks at this problem. They see that the dangers of the North Korean regime developing these nuclear weapons as a danger that is destabilizing for the relationship with the United States and South Korea and just simply because they can't predict and control exactly how this program is evolving.

I think China is very hesitant despite that to think in terms of military options for intervening in North Korea under any conditions other than real chaos where the continued existence of the North Korean regime is heavily in doubt and there is the possibility that South Korea and possibly the United States would move above the 38th Parallel.

I think the Chinese have certainly developed options for intervening in North Korea to establish a buffer at the very least along the border. And no doubt to identify and try to secure nuclear weapons if the situation there really became chaotic.

And of course the possibility that they would have to even put larger forces onto the peninsula. Some people argue that the reorganization that's the Chinese military has recently undergone has been a big reform effort. It has also reorganized the command structure of the regional Chinese military.

They have made changes that arguably make it easier for the Chinese military to intervene along the Korean Peninsula over water, not just through the land, which they would not have the capacity to do decades ago. Today, you could argue that they might have that capacity.

But I think, as I said before, they remain very cautious about this situation. I have no idea what the internal military planning is, of course. But every time I've had dialogues with the Chinese and I've had crisis simulations involving the Chinese on an unofficial level involving the DPRK, involving real disarray, on the peninsula, including military analysts, the Chinese have been very hesitant to signal in any way that China would move quickly across that border in the event of unrest unless it were in the extreme cases of what I've mentioned before.

I think in terms of military provocation, if you will, I think the Chinese are the most concerned about the United States today. They are not concerned as much about the North Koreans. I think China looks at the Trump administration and they don't know where the red lines are.

Chinese have asked me, including senior Chinese military, have said, "What is the force calculus here?" What is the cost-benefit calculus of trying to use force against North Korea to get them to stop developing nuclear weapons? "We don't see a good outcome to any of that." Of course, they would say that.

They say it by way of asking that the United States in some way, shape, or form let them know before it would actually take a decision to use force against North Korea. China makes all kinds of benign explanations as to why they would want that advance notice, but I doubt they would get it.

China worries about that. They're most concerned with what the force threshold is for the United States. They ask about that all the time.

Daniel Russel: Before opening the floor up to questions, let me ask John a quick one.  How does the North Korean leadership make money?  [Laughter]

Michael Swaine: They literally make money.  [Laughter]

John Park: That's a very, very interesting case study. In the beginning, it was absolutely that. There were super notes. The North Koreans were so good and sophisticated in that. It's all in the public domain now. They would get $1 bills and get rid of the imprint and the dye and use the paper. They somehow perfected the plates in the super notes.

They are so good that eventually the treasury department and the US Mint had to redesign the $100 bill. There is also concern that the North Koreans are applying that expertise to counterfeiting the Chinese currency. It looks like it's a transferable skill set. [Laughter]

There is also narcotics. There are large pharmaceutical assembly lines in North Korea.

Daniel Russel: Particularly methamphetamines.

John Park: Absolutely. That [meth] has made its way into the Chinese provinces as well. There is a parallel detention center for those trying to leave North Korea and those involved in the drug trade.

The other part of it, earlier on we saw North Korea very active and very prolific in being an arms dealer. North Korea has a reputation of making the best knockoff AK-47s and selling missiles back in the day. 

But now, its the mineral resource trade, the amount of money they made in the second half of the 2000s, we still see the residual funds as dedicated funds financing proliferation. One troublesome aspect of that is the current efforts to block off revenue streams now may be too late.

They have slush funds from that time period and they're drawing down on it strategically. That's a troubling capability.

There are more and more reports that are difficult to verify about engagement in cyber activity. There is crypto currency. This is not a backward, technologically handicapped regime. It's extremely adaptable.

As you look at the evidence, it's shocking to many. But if you follow that line of reasoning, North Korea is an active member of these revenue generating ventures.

Daniel Russel: There are great people in the audience. Let me open the floor to questions. There is a microphone. Raise your hand, introduce yourself, and make it a question rather than a soliloquy.

Audience Q:  I'm Homer Williams. I'm retired. I have a whole list of questions. First, I would like a better definition of North Korea Inc. I feel like that could be flipped and viewed as Chinese colonization of North Korea economically. Not politically but economically. You see Land's End shirts being sewn in North Korea and other production.

Daniel Russel: That's a big question right there. Let's ask John about that.

John Park: North Korea Inc. is a network of North Korean trading companies. They are task specific. They are designed to generate revenue. The coal trade is dominated by subsets of these elite trading companies. Then there are others that procure the wish list. It's like an annual wish list that comes from the center.

Earlier on, that was a big concern in South Korea. As we heard reports of Chinese 50-year leases on North Korean mines, it was economic colonization of North Korea. South Korea was very concerned that this had impacts in terms of their efforts to affect reunification.

One thing I would add to North Korea Inc., when you look at its activities, the key features are striking in their normalcy. If you look at the managers who run North Korea Inc. in the Chinese marketplace, you could say they're any ex-pat doing business on a globalized basis that helps them be even more effective than the previous way of doing business.

Daniel Russel: The lady in the black jacket?

Speaker: I'm Elizabeth from UPI. I have a question for Dr. Park. I was fascinated by the concepts you used to describe North Korea's resistance -- adaptation, super bug, resistance. That leads me to believe that it's part of the organism of China and the Chinese economy, which is part of the super structure of the world economy. It seems almost impossible to impose the sanctions we want and get them to do anything.

What is the downside of recognizing North Korea as a nuclear weapon state given its advance program? And does it have to do with splitting the US/South Korea alliance and other downsides?

John Park: With respect to living with a nuclear North Korea, there are very strong voices in the US administration that have an equation- It's Kim Jong-un equals irrational plus undeterrable plus revisionist plus commercial. He's literally crazy so you can't arrange anything with him.

Because of the ICBM tests of last year and the American homeland held at risk by an unbalanced individual, this is seen as urgent. That leads to the undeterrable part. Others in the administration say we should calm down. We are deterring and peacefully coexisting with China and previously the Soviet Union.

But your deterring countries and groups were one thing, but with North Korea it's a millennial with nuclear weapons. No one can give a good answer of this evidence that Kim Jong-un is not suicidal.

Revisionist does not mean peacefully coexisting. Kim Jong-un might be a nuclear bully to get his way.

Commercial means once Kim Jong-un has a viable weapons system, he'll sell it. And he will sell it to Iran. That's one strong growing view why the United States can't live with a nuclear North Korea.

Daniel Russel: Michael, explain something. The Chinese are on record repeatedly declaring they can't accept a nuclear North Korea either.

Michael Swaine: I think they genuinely believe that's not in their interest. But how do you get there? How do you balance that against all of the other interests in dealing with North Korea?

I think the Chinese generally think the North Korean regime is not insane. They don't think it is just going to haul off and fire an ICBM at the United States. I think they however do have the concerns that a nuclearized North Korea could undertake actions which could try to export, intimidate and coerce, could use nuclear weapons in ways to threaten China itself.

They could also be used in the Kargil type way in South Asia, giving the sense that North Korea has this backstop. You won't ultimately destroy us because we have nuclear weapons. Therefore, the risk threshold goes down. And we will be more willing to engage in actions that would highly destabilized.

I think people in China are concerned about that. To get to what John and Danny said, I've heard some people in the Trump administration say we don't think the North Koreans in any way seriously believe the United States threatens them.

They know the United States doesn't threaten them. They want nuclear weapons to blackmail and to divide the ROK from the United States to gain leverage through that, using conventional and other means that will then start this unraveling of the alliance in ways that could ultimately give North Korea some kind of an advantage.

In that process, they're willing to take fairly high risk because they haven't given up the idea of unifying the peninsula largely under their influence.

Now, I don't share that categorical view that the North Koreans don't think the United States is any sort of threat. I think they definitely believe the United States is a threat. The question is how to balance that particular calculation against their desire to use nuclear weapons to unify the peninsula.

At one point, the North Koreans were willing to give up their nukes. I think they were genuinely willing to give up their nukes at one point. People can argue against that and said they never had that idea and were always committed to developing nukes. But I think you can make a strong counterargument to that.

There is a calculus at work there. I think we've gone beyond that now. I don't think any North Korean leader now thinks they can give up their nuclear weapons. I think they believe that they are just giving them much more leverage than they would otherwise have. And they're willing to continue to use that leverage and to develop that leverage. How far will they develop? How will they use it?

Daniel Russel: Let me add one more factor. For North Korea to be accepted and legitimized as a nuclear weapons state would spell the end of the global nonproliferation regime. It's hard to imagine a scenario in which the recognition by the United States of North Korea's status as a nuclear state -- not merely against our wishes and in the face of crashing sanctions -- but to be accepted as a de jure nuclear state.

It's hard to imagine a scenario in which that doesn't translate into a push of South Korea to acquire its own nuclear capabilities. That represents an erosion of American deterrence. It's equally hard to imagine a world with a nuclear North Korea, a nuclear South Korea, but not a nuclear Japan.

There are scenarios that have this super bug spreading to Vietnam and Taiwan and other parts of the world. We're just talking about Asia. It has huge negative implications for the existing nuclear powers, not limited to the United States.

Let's use our time to ask and answer more questions. There's a gentleman in the back.

Audience Q: Thomas from the NYC Political Forum. I have a quick question about the bully and irrational leader. There is a doctrine that's the idea of self-reliance ingrained in this state-sponsored ideology of “Juche”. It's both economically and national security self-reliance.

Once the regime emerges as a nuclear power and join the international community, will they back away from this rhetoric and now they're self-reliant on their national security and have stability? Can they emerge as an economic power and go through reforms like China in the 1980s?

Daniel Russel: It sounds like a fever dream to me. [Laughter]

Michael Swaine: From my point of view, I think the North Korean regime, meaning the Kim regime and the ideology, is bound up with the idea that is under siege. It's under threat. That justifies an enormous amount for the North Korean regime and an enormous amount of deprivation on the part of the North Korean people.

It's hard for me to see how the North Koreans would make that transition away from that to the kind of approach you're talking about, particularly given the South Korea government and economy and society which is more dynamic, more open, much stronger than the North Koreans

They know that as well. If they open up seriously as the Chinese have urged them to do for decades, I think they understandably, from their perspective, would see that as a hugely dangerous option.

They would rather try and benefit from the kind of nefarious economic dealings of one sort or other they have with the Chinese and others and exist in that world than risk the kinds of outcomes that would come from fully opening up. I don't know if John agrees.

John Park: I do agree. In addition to that concept, there's another concept that was in one of these Track Two dialogues held in a Scandinavian country. That idea was scoffed out. If you can imagine a North Korean diplomat lay out a plan for independent nuclear deterrent and build up the economy in a parallel way was seen as a delusion.

But it's a very real concept in the North Korean sense. They have the facts to build it up. Last year was unbelievable in terms of the speed of the testing cycles. Some of them happened with weeks in between. We had a first test July 4th and the second July 28th. July will go down in the history books where North Korea became a threat over there to one that suddenly held the United States psychologically hostage.

That's a huge game changer. If you listen to some of the discussions in Washington in the administration, North Korea ranks higher than the war on terrorism. In a short period of time, we've seen the upending of that long standing priority for the United States.

Why I think this concept merits further investigation in a serious way, if you think of it trying to support a whole country 100%, there are certainly holes in that logic. But if it's just bolstering the prosperity of the 1%, it's doable.

North Korea gets in the ranking of failed or failing state. But if you divide the GDP by 200,000, the population of the elites, there is prosperity in Pyongyang that is real.

I've heard from Chinese government think tank colleagues that they're sympathetic to this concept. They see similarities in it because that's what Chinese did. They did minimal nuclear deterrent and then piled the other resources into the economy.

If North Korea stays quiet for a long period of time, I think you'll see that concept much more viable.

Daniel Russel: Let me take one question via Twitter. What sort of leverage and bargaining chips do you think we have with China as the US to try to get China to take more action to coordinate with us or advance the pressure strategy?

Michael Swaine: You could probably answer that better than I can because you've tried many times.

Daniel Russel: Well, since I haven't succeeded it's your turn. [Laughter]

Michael Swaine: This issue turns on how the questions of - A) to what degree does China really decide this issue? To what degree is its influence in this situation decisive? I think that is a debatable argument.

We can get into a discussion about how resilient this whole infrastructure is between North Korea and China. And could it be broken down? Or given the nature of the PRC system, how it operates, the cronyism, the corruption, etc., is it just impossible to be able to break it down?

I tend to think that the Chinese influence here is limited. But if you think it has decisive influence and the Trump administration waffles all over the place about this issue, it does think that it can squeeze the Chinese more. I think the main tool it's using to squeeze the Chinese on this is the possibility of using military force.

I think that's the biggest difference between the Trump administration and its predecessors. It's more credibly trying to level the threat that it could actually use force against the North Koreans.

And the North Koreans themselves are driving this because they have gone through this process of moving the ball so quickly on the nuclear front. Ultimately, it gets down to what is the United States willing to risk in its relationship with the Chinese, which is a gigantic relationship across a whole range of different issues? What is it willing to risk? And does it get that calculus right as to what the consequences would be of really trying to pressure the Chinese? And would they be absolutely sure that if it worked it would affect the North Korea situation in the way they want? That's a lot of if's.

Daniel Russel: Lee? You have a question?

Audience Q: Michael Swaine said something interesting that they had given up their nuclear weapons. The question that always dogged some of us was why? You have nuclear weapons. Presumably that's worth something for your security.

But I think that raises the deeper question. You guys are focused primarily on the China side of the equation. What about the North Korea side? Let me give you a hypothesis. It's just a hunch. The North Koreans have talked for years about not wanting to be dependent on China. This goes back to the Cold War where they played off the Soviets against the Chinese.

Their solution under Kim Il-sung in 1988 was to reach out to different countries and fundamentally alter their relationship and using the nuclear program as a device for that purpose. Is that still plausible? They still say these things. Just because they say it doesn't make it so. But they still say these things.

Does that factor into Chinese thinking about the problem? Clearly people around the State Council understood the position in that way.

Michael Swaine: Good question. One thing to keep in mind is that the North Korea of 1988 and the North Korea of today are very different. The Chinese had some degree of confidence in dealing with North Korea back in the 1980s that they could get a clear answer from them and that the North Koreans would do things that would not jeopardize their interests. I don't think they have that confidence at all with the current regime.

They're not willing to give the benefit of the doubt. I see Danny's argument about getting the nuclear weapons and then just putting them in the back and move along. The Chinese will think it's what they did.

But China looks at the North Korean regime today and don't believe it has that capacity to pursue that policy effectively. The United States will not tolerate that for one minute. We wouldn't be here talking about this situation if it weren't for the fact that the North Koreans are acquiring nuclear capability to strike the United States and the United States believes they might actually use it in a real way.

Nobody knows what the United States calculus is in dealing with that problem. I've asked this of senior US officials. You have a policy now that is basically keeping the screws going and they'll break. That's the policy. There's nothing else. Keep the screws going; they'll break.

The obvious question is let's say they don't break. Let's say they don't freeze their nuclear weapons. Let's say they will develop a capability where they have the capacity. I don't think they have that today. But let's say they get to that point. You're going to go to war over that?

They can't answer the question because they don't want to signal what they're willing to do because they don't know what they're going to do. Trump doesn't know what he's going to do. You might disagree, but I don't think he ultimately knows. I don't think most US officials know what they will do.

But the issue is possession versus use. You have to stop them from possessing those weapons and you will do anything to do that? That raises a whole host of policies and decisions as opposed to needing to deter the hell out of them and limit their ability to use their nuclear weapons in any way, but they'll be there.

You'll never accept them but you need a strategy for dealing with them. Those are two different things. Right now the United States doesn't want to talk about the latter option because it signals the ability to accommodate. But they're caught because the North Koreans are in the driver's seat.

If they decide they want to keep on developing, the United States has to respond in some way. Right now, their only response is "keep screwing that down." [Laughter]

Daniel Russel: Let me go back to your question and raise an issue. In the late 1980s, North Korea asserted that it was prepared to abandon its nuclear program. I had the experience of dealing with the North Koreans from then until 1994 in an agreement that may indeed have been a commitment by the North Koreans to abandon its nuclear program.

But we didn't take the North Koreans at their word. We felt it essential to develop independent ways of confirming that their nuclear program in fact was halted. As it turned out, over time, it was not halted.

Today, what the North Koreans are saying is we will never de-nuclearize. "We will never relinquish our nuclear deterrent. You Americans just have to live with it." Today, the United States and the world is in the ironic position of not wanting to take North Korea at its word again because we want to try to create a pathway to negotiations.

As difficult as it is to envisage a scenario in which North Korea willingly relinquishes its nuclear program, governments are disposed to believe that North Korea could be brought unwillingly to a set of difficult decisions whereby relinquishing its program piecemeal through a gradual rollback is the least worst option available to them.

Audience Q: All this ducks the question, in your job, did you ever think that one of the main purposes strategically for North Korea was to reduce its dependence on China by reaching out to us? Dependence for security above all but secondly economically?

If that is still true, that gives you a basis for negotiation. It gives us leverage, not the Chinese. There's a different logic working here if you start from the China end of it, you get down one road. Will they? How much?

If you start from the North Korean road, if this is plausible still, it gives you a very different outcome.

Daniel Russel: The short answer to your question is absolutely. There's no question, as Michael alluded to, given the history on the Korean Peninsula that the North Koreans bridled badly at their vulnerability and dependence on China. There is very much a strategy to ensure that the past will not be recreated in terms of China's dominance of the DPRK.

One of the bitter ironies of the Korean situation is Kim Jong-un's decisions and policies have resulted in a historic level of dependence -- political, security, economic -- on China.

Another irony is that Kim Jong-un's decisions have created a situation in which China's worst fears -- namely, more robust American military presence in Northeast Asia and stronger US-Japan alliances -- are coming into being in pretty significant and dramatic ways.

Michael Swaine: I think the North Koreans fear us more than they do the Chinese. Sure, I think they have a desire to be independent. They don't want the Chinese pushing them around. I think they have shown that the Chinese are not pushing them around.

But I don't think they fear the Chinese are going to invade them. I don't think they necessarily fear the Chinese are going to destroy them.

Now we can debate endlessly whether they really think the United States could do that, but the United States certainly could do that. And Trump has directly threatened that. "We will eliminate you as a state if you threaten us." And that's pretty strong.

Yes, they have that concern. No, I don't think it would be enough to justify a policy that would be based on what you're saying.

Daniel Russel: Michael, John, we're out of time. You have memorably introduced some great concepts to the debate, including a super bug.

Please join me in thanking the panelists. [APPLAUSE]