WARS are fought with weapons, but also with money. To understand the global balance of power in the coming decades, it helps to pay attention to the commercial subplot of the North Korean crisis. For the first time, America is attempting to use its full legal and financial might to change the behaviour of Chinese companies and banks, which it believes are propping up North Korea by breaking UN and American sanctions. Some American politicians have concluded that, as China’s firms have integrated with the global economy, they have become more vulnerable to Uncle Sam’s wrath. America has potent weapons, but the trouble is that China can retaliate in devastating fashion.
North Korea is highly dependent on China. Some 60-90% of its trade is with its northern neighbour. China’s state-run energy giant, CNPC, is thought to have sold it oil in recent years—and is the parent of PetroChina, which has depositary receipts listed in New York. North Korean banks and firms operate in China, and it is likely that Chinese banks have dealt with them or their proxies.
After months of American pressure, on September 21st China’s central bank was reported to have told the country’s lenders to stop writing new business with North Koreans. But America’s Treasury is still on the warpath. On September 26th it blacklisted 19 North Korean bankers working in China and eight North Korean firms. In private it is excoriating China’s largest lenders, which own $125bn of assets in America, equivalent to 14% of their total capital. On September 28th a Senate committee demanded an ever tougher crackdown on Chinese banks.
Such extraterritorial reach by American regulators (and courts) is a feature of international business. Misdeeds anywhere can be punished, if the firm in question issues securities in America, has a subsidiary there or makes electronic transactions in dollars. America has pursued eight of Europe’s biggest 50 companies by market value for breaking sanctions in the past decade, and 18 of them for corruption. After the attacks of September 11th 2001 America stepped up efforts to police the global dollar payments system. It aggressively enforced sanctions against Iran. European financial firms faced $13bn of related fines and France’s BNP Paribas and Britain’s Standard Chartered almost lost their American licences, which would probably have put them out of business.
Read more here: American efforts to control Chinese firms abroad are dangerous