US Treasury Secretary Steven Mnuchin threatens more sanctions on China over North Korea

US Treasury Secretary Steven Mnuchin in a Senate Budget Committee hearing on Capitol Hill in Washington, DC, on June 13, 2017.
US Treasury Secretary Steven Mnuchin in a Senate Budget Committee hearing on Capitol Hill in Washington, DC, on June 13, 2017.PHOTO: AFP

WASHINGTON (BLOOMBERG) - Treasury Secretary Steven Mnuchin warned that the United States may impose additional sanctions on China - potentially cutting off access to the US financial system - if it does not follow through on a fresh round of United Nations restrictions against North Korea.

The UN Security Council added new sanctions against North Korea after leader Kim Jong Un's regime conducted its sixth and most powerful nuclear test.

Mr Mnuchin echoed the US envoy to the UN, Ms Nikki Haley, in calling the sanctions "historic" even though they did not include US demands for a full oil embargo and a freeze on Mr Kim's assets. The new measures include limiting North Korea's imports of petroleum products and banning textile exports.

"If China doesn't follow these sanctions, we will put additional sanctions on them and prevent them from accessing the US and international dollar system - and that's quite meaningful," Mr Mnuchin said during an event at CNBC's Delivering Alpha conference in New York on Tuesday (Sept 12).

The Treasury Department under President Donald Trump has broadened its reach on North Korea by slapping sanctions against Chinese individuals and entities it has accused of helping Pyongyang's development of nuclear weapons and ballistic missiles.

"North Korea economic warfare works," Mr Mnuchin said. "We sent a message that anybody that wanted to trade with North Korea - we would consider them not trading with us."

China's Ministry of Commerce said it would not immediately comment on the threat of fresh measures. The People's Bank of China said this week that it has ordered domestic banks to suspend opening or changes to accounts for clients on the UN sanction list and also prohibited other financial services for those clients.

On Tuesday, Mr Trump appeared to downplay the significance of the UN sanctions.

"We think it's just another very small step," Mr Trump told reporters at the White House one day after the Security Council's unanimous vote. "Not a big deal. Not big. I don't know if it has any impact but certainly it was nice to get a 15-to-nothing vote. But those sanctions are nothing compared to what ultimately will have to happen."

At a hearing of the House Foreign Affairs Committee on Tuesday, Republican Chairman Ed Royce said the US should target major Chinese banks, including Agricultural Bank of China and China Merchants Bank, for aiding Mr Kim's regime.

Russia also came in for criticism.

Assistant Treasury Secretary Marshall Billingslea said in prepared remarks to the committee that North Korean bank representatives "operate in Russia in flagrant disregard of the very resolutions adopted by Russia at the UN".

While China and Russia supported the latest UN sanctions, officials made clear they were troubled by Ms Haley's comments in the Security Council that the US would act alone if Mr Kim's regime did not stop testing missiles and bombs. They emphasised the world body's resolution also emphasised the importance of resolving the crisis through negotiations.

"The Chinese side will never allow conflict or war on the peninsula," Foreign Ministry spokesman Geng Shuang said in a statement on Tuesday.

China and Russia - the biggest economic patrons of North Korea - both share the view that North Korea would not give up its nuclear weapons without security guarantees, and they do not see the point in fomenting a crisis on their borders that will benefit American strategic goals. At the same time, they do not want Mr Kim provoking the US into any action that could destabilise the region.

"Sanctions of any kind are useless and ineffective," Russian President Vladimir Putin told reporters earlier this month at a summit in Xiamen, China. "They'll eat grass, but they won't abandon their program unless they feel secure."