By Benjamin Kang Lim
BEIJING (Reuters) - China has been quietly and gently pressuring North Korea to scrap plans for a third nuclear test, said two sources with knowledge of closed-door discussions between the countries, but there is no indication how the North will react.
If North Korea goes ahead with the test, China would consider taking some retaliatory steps, but they would not be substantive, a source with ties to Pyongyang and Beijing told Reuters.
North Korea has almost completed preparations for the test, Reuters reported in late April, a step that would further isolate the impoverished state after last month's failed rocket launch that the United States says was a ballistic missile test.
"China is unhappy ... and urged North Korea not to conduct a nuclear test near Changbai Mountain," said the source, who declined to be identified because of the sensitivity of the matter.
China feared a radiation leak and damage to the environment from a blast, the source added.
"China also complained about the environmental damage to the area after the first two tests."
When North Korea conducted nuclear tests in 2006 and 2009, it caused environmental damage to the mountain straddling the border with China. North Korea ceded part of the mountain to China in 1963.
It was unclear if the secretive North Korean government, typically unwilling to bow to outside pressure, would defer or drop the plans. China is the closest thing to an ally that North Korea has.
"The impact on China's northeast would be huge," the source said of a third test.
Chinese officials have discussed whether threats of diplomatic action would be effective, but any action might be restricted to some economic measures to signal China's displeasure and would not affect vital food aid for North Korea, the source said.
A Western diplomat, who also asked not to be identified, confirmed that China has put pressure on North Korea to abandon the test.
Major diplomatic repercussions were unlikely, however, said Jin Canrong, associate dean of the School of International Studies at Renmin University in Beijing. Instead, Jin, who has knowledge of how China deals with North Korea, said China may use financial levers to influence its neighbor.
"If closed-door negotiations fail to produce results, economic aid could be cut," Jin said, adding that imports of mineral resources and unspecified "special local products" could also be reduced.
China's exports to North Korea rose 20.6 percent last year to $2.28 billion from 2010, while imports plunged 81.4 percent to $147.4 million, according to Chinese customs figures.
China would also likely back another U.N. resolution slapping further sanctions on North Korea, including trade, said Jin.
China condemned North Korea's first nuclear test in October 2006, carried out in defiance of China's public pleas, and it supported a U.N. resolution that authorized sanctions. It backed sanctions again after the North's second test in May 2009.
Despite pressuring North Korea to cancel plans for a third test, China would want to avoid serious diplomatic measures, such as recalling its ambassador, said Jin.
"China does not want unnecessary external trouble ahead of the 18th congress. A major change in policy is not likely," he said, referring to the Communist Party's five-yearly conclave later this year when a broad leadership change is widely expected.
The sources declined to speculate whether China would cut oil supplies to North Korea.
In 2003, China briefly cut off fuel to North Korea after a missile test, but it cited technical problems.
The United States wants China to do more to rein in North Korea but China has little leverage over it and is unlikely to pull the plug on food aid due to fears of instability in its northeast, said the Western diplomat and Jin.
"China can't stop food aid. If that stops, it would endanger the regime," the envoy said of North Korea's leadership.
The main factor keeping China from using harsh measures to restrain North Korea is the fear of a destabilizing exodus of refugees into northeast China, preceded or followed by collapse of the North Korean regime.
"Experience has shown that sanctions have little impact on North Korean decision-making. And, of course, the comprehensive sanctions regime will be sabotaged by China, for whom a nuclear North Korea is a lesser evil than an unstable and or collapsing North Korea," said Andrei Lankov, a North Korea expert at South Korea's Kookmin University.
In addition, in the face of rising tension over disputed islands in the South China Sea, the last thing China needs is the United States using a North Korean nuclear test as an excuse to step up its military presence in the region, said a source with ties to China's top leadership, requesting anonymity.
U.S. Secretary of State Hillary Clinton, in Beijing for two days of meetings this month, said the United States was willing to work with North Korea if it changed its ways.
North Korea hopes the United States would sign a peace treaty and recognize it - the North's long-standing demands - if it put off the nuclear test, the source with ties to Pyongyang and Beijing said.
The 1950-53 Korean War, in which China helped North Korea against the United States and South Korea, ended in a truce.
The threat of a nuclear test comes as Kim Jong-un, believed to be in his late 20s and the third member of his family to rule North Korea, seeks to cement his grip on power.
His father, Kim Jong-il, died in December after 17 years of rule that included mismanagement that resulted in the starving to death of an estimated 1 million people in the 1990s.
The untested Kim Jong-un has reaffirmed his father's "military first" policies that have stunted economic growth, dashing slim hopes of an opening to the outside world.
North Korean media recently upped its criticism of South Korean President Lee Myung-bak, who cut off aid to the North when he took power in 2008, calling him a "rat" and a "bastard" and threatening to turn the South Korean capital to ashes.
(Additional reporting by David Chance in SEOUL; Editing by Don Durfee and Raju Gopalakrishnan)