As the United States continue to tough its rhetoric on stopping North Korea’s arms race, sanctioning the four major banks from China may be the most effective way to deal with the rogue nation. Fresh indications have emerged that the U.S. might be working towards blocking North Korea’s finance jugulars in order to stop it from proceeding on its nuclear program.
One would wonder what sanctioning the four largest Chinese banks has to do with stopping North Korea. However, some experts believe that the Bank of China helped the North Korea to evade sanctions in the past. Hence, sanctioning the four big lenders from the second world’s second largest economy will be a bold statement in checking the rogue nation.
China, the largest trade partner with North Korea
Bejoy Das Gupta, the chief economist at the Institute of International Finance asserted that China is the largest trade partner with North Korea, accounting for 85% of North Korea trades. Therefore, sanctions on major Chinese banks may be a way to force the hermit nation to stop its nuclear programs.
The Chinese big four banks
China is not just the world’s second largest economy; it also boasts four major banks, which are the largest asset lenders in the world, according to S&P Global Intelligence latest ranking.
The largest bank in the world is Industrial and Commercial Bank of China, with total assets of $3.47 trillion, at the end of 2016. Three other Chinese banks that round up the top four global ranking are Bank of China, Agricultural Bank of China, and China Construction Bank, the three lenders have assets in the region of between $2.60 trillion and $3.02 trillion.
In comparison, the largest American bank JP Morgan Chase, is the sixth largest bank in the world on the S&P global ranking with total assets in of $2.49 trillion at the end of 2016. Whereas, the biggest bank in Europe HSBC is was in the seventh position with total assets of $2.37 trillion.
A banking industry report analysis by the Financial Times reveals that the massive growth of Chinese big lenders helped China to beat the Eurozone as biggest banking system in the world with assets of $33 trillion in 2016.
Adding the four banks to US sanction list may be catastrophic
The Treasury Department in August announced that it was adding more Chinese entities to the List of sanctioned companies. Steven Mnuchin said the Department “will continue to increase pressure on North Korea” by, among others, “isolating them from the American financial system.” All the four state owned Chinese banks have increased their presence in the US, where they engage in issuing bonds, loans and other financial activities; hence, such sanctions could have a material effect on their bottom lines.
Seaman said, “The U.S. Treasury Department has often been hesitant to expand the secondary sanction regime to include, for example, restrictions on Chinese SOEs (state-owned enterprises) and Chinese large banks in part because the Chinese government will react very negatively, but also it will have an impact on international economy and markets”.
Since banks hold in the region of 90% of Chinese total assets, sanctioning the four banks will have implications on the international economy and market. Should America decide on sanctioning the four banks, Beijing may take retaliatory actions that may affect the balance in the world economy; sacrificing the global economy because of North Korea may be a too expensive price to pay.