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Trump turns from carrot to stick ahead of second China summit

Washington ramps up steps to force pressure on North Korea

TSUYOSHI NAGASAWA and OKI NAGAI, Nikkei staff writers | China

WASHINGTON/BEIJING -- By sanctioning a Chinese bank and deciding to sell arms to Taiwan, U.S. President Donald Trump is cutting short his honeymoon with Beijing in hopes of securing greater cooperation against North Korea's nuclear development.

"We will be meeting with China and other countries at the [Group of 20 summit] next week to further our efforts to cut off North Korea's illicit activities," Treasury Secretary Steven Mnuchin told reporters Thursday at the White House.

The U.S. will be "maximizing economic pressure on the regime until it ceases its nuclear and ballistic missile programs," he said.

The U.S. Treasury has accused the Bank of Dandong, based near China's border with North Korea, of serving as a financial conduit for Pyongyang and facilitating millions of dollars of transactions with companies involved in the rogue nation's nuclear and missile development. The bank on Thursday was designated a primary money-laundering concern and banned from doing business with U.S. institutions.

With this secondary sanction targeting a third-party financial institution, the U.S. administration is looking to cut North Korea off from the global financial system. In 2005, under then-President George W. Bush, the U.S. imposed similar penalties on Macau-based Banco Delta Asia. The move led the bank to freeze accounts tied to the North. It also made other financial institutions think twice about dealing with Pyongyang.

These developments posed significant challenges to North Korea in collecting payments for its exports, as well as in securing dollars to pay for its imports. It is considered one of the factors that brought North Korea to the table for six-party talks on its nuclear program. The Bank of Dandong is now likely to find trouble conducting business overseas.

Meanwhile, Trump on Thursday approved the first arms sale by the U.S. to Taiwan since December 2015, under predecessor Barack Obama. The deal covers guided bombs and interceptor missiles, but is not believed to include equipment that could seriously anger Beijing, such as fighter jets or submarines.

The office of Taiwanese President Tsai Ing-wen welcomed the decision. "This increases Taiwan's confidence and ability to maintain the status quo of peace and stability across the Taiwan Strait," she said in a post on Twitter.

Since meeting Chinese President Xi Jinping in April, Trump had adopted a conciliatory stance toward Beijing. He even seemingly abandoned his campaign promise to name China a currency manipulator. But the U.S. president is growing frustrated by Pyongyang's continued provocations. Chinese help on the North "has not worked out," he tweeted recently.

Trump is pressuring Xi to make progress on North Korea ahead of their second summit, scheduled on the sidelines of next week's G-20 forum in Hamburg, Germany. The sanction directly targets a Chinese bank, and Beijing considers Taiwan to be the biggest flashpoint in its relations with Washington. The U.S. has also spoken out against unfair trade practices, and is gearing up to press China at the G-20 to work toward resolving the country's oversupply of steel.

Beijing has pushed back against these developments. Foreign Ministry spokesman Lu Kang on Friday stressed that Taiwan is an inseparable territory of China, and that the arms sale violates Chinese sovereignty and national security interests. He urged the U.S. to cancel its plan to prevent further damage to bilateral relations.

On the Bank of Dandong, Lu said foreign countries should not try to control Chinese entities and individuals based on their domestic laws.

In order to maintain rapport with the Trump administration, Beijing needs to deliver some results on North Korea. On the other hand, it is reluctant to take heavy-handed measures that could create turmoil in the North.

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