HONG KONG (Reuters Breakingviews) - The way out of the diplomatic trap in North Korea runs through Beijing. The People’s Republic has more to lose than the United States from the soon-to-be nuclear power on its doorstep. Regime change led by China, rather than the United States, may be the best of a range of unappealing options.

FILE PHOTO: North Korea's leader Kim Jong Un watches a military drill marking the 85th anniversary of the establishment of the Korean People's Army (KPA) in this handout photo by North Korea's Korean Central News Agency (KCNA) made available on April 26, 2017. KCNA/Handout via REUTERS

China has the experience and resources to rebuild the Hermit Kingdom. But the government seems paralysed by the escalating situation next door. It has stuck to its diplomatic philosophy of not meddling in the internal affairs of other countries - a position that is increasingly inflexible for a would-be world power. Officials are also hobbled by their own propaganda. Most citizens were taught that the hundreds of thousands of Chinese soldiers who died in the Korean War were defending their country from U.S. aggressors. This makes any overt cooperation with America a tough sell domestically.

Graphic: Risky business: reut.rs/2rYuXv4

There are also valid economic concerns. Tougher sanctions that destabilised North Korea’s economy would send refugees flooding across the border into the rust belt of northeast China, where they would aggravate already serious economic stress.

Even so, the relationship with the Democratic People’s Republic of Korea is fraying. The North Korean regime has snatched Chinese fishing boats and tested atomic bombs during important Chinese holidays. It launched ballistic missile trials during the recent “Belt and Road” infrastructure forum in Beijing, stealing headlines from a summit intended to showcase China’s global leadership.

The country’s young leader Kim Jong-un has also moved against senior government officials who were considered pro-China, including his uncle Jang Song-thaek. His half-brother Kim Jong-nam was assassinated in Malaysia despite residing in Macau under China’s ostensible protection.

Propping up the rogue state also has opportunity costs. Support for the Kim regime - which depends on Chinese oil donations just to keep its lights on – not only justifies the continued presence of U.S. troops south of the demilitarised zone, but undermines South Korean politicians who favour closer relations with China. This frustrates both Chinese diplomats and its younger citizens, who are mad for South Korean pop and fashion.

Graphic: Little brother: reut.rs/2qZJem0

Chinese customs data shows bilateral trade with South Korea surpassed $85 billion in the first four months of 2017, making the Asian democracy China’s third-largest trading partner and its number one source of imports. Trade with North Korea, on the other hand, was a paltry $1.6 billion over the same period.

REFORM AND OPENING 2.0

Say the People’s Republic managed to remove or sideline the obnoxious Kim. China could then help to rebuild the North Korean economy using the reform template it developed after the death of Chairman Mao Zedong in 1976. China left the dictator’s image intact, but ripped up his economic policies, unleashing decades of growth.

Seoul would protest in public, but might exhale in private; so would America. A more docile North Korea could wind down its nuclear programme, formally end the Korean War, and perhaps even establish a timetable for reunification.

If Beijing managed to reproduce China’s post-Mao growth rates – which have averaged around 10 percent since 1978 – North Korea’s $40 billion economy would balloon to $1.5 trillion in four decades. Allowing wider private ownership could unleash a real estate and infrastructure boom. The spillover from trade between China and South Korea passing through the North would be massive.

An actual intervention would be highly risky. Deposing a leader known for executing his own people with anti-aircraft guns is tough. War would be devastating. But it needn’t come to that. Just by signalling it’s considering harder options, Beijing would open a second front. That, more than anything else, might frighten Kim back to the negotiating table.

NOT SO FAST

The alternative is for China to keep making threatening but empty economic gestures while trying to squeeze concessions out of the United States. For all the bluster about China banning coal imports, customs data shows the country’s net trade with North Korea has risen in the first months of this year - hardly an effective embargo.

In the absence of far tougher sanctions or the threat of military attack, however, Pyongyang has no good reason to abandon its nuclear programme. Kim’s legitimacy rests on his ability to defend his people against real or imagined foreign threats. Once armed with a nuclear deterrent North Korea will be even less pliable. At that point China will be out of options, even ugly ones.