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China Warns Trump: "We Will Prevent A North Korea Regime Change"

In a troubling repudiation of President Donald Trump’s demands that Beijing do more to rein in its bellicose neighbor, Beijing, through the state-owned media, cautioned the US president on Friday that it would intervene (militarily) on North Korea’s behalf if the US and South Korea launch a preemptive strike to “overthrow the North Korean regime,” according to a statement in the influential state-run newspaper Global Times.

"If the U.S. and South Korea carry out strikes and try to overthrow the North Korean regime and change the political pattern of the Korean Peninsula, China will prevent them from doing so," it said.

At the same time, the Chinese regime  made it clear that its preferred outcome would be a continuation of the status quo, warning Kim Jong Un that it would "remain neutral if North Korea were to strike first." The article, cited by Rueters,  reiterated calls for a diplomatic solution. However, the possibility of talks between the two sides was looking increasingly remote as both Trump and Kim continued to exchange threats of nuclear annihilation, with Trump clarifying Thursday that his earlier promise to respond with “fire and fury” should the North continue to threaten the US may not have gone far enough.

China - North Korea's most important ally and trading partner -  has reiterated calls for calm during the current crisis. Beijing has expressed frustration with both Pyongyang's repeated nuclear and missile tests and with behavior from South Korea and the United States, such as military drills, that it sees as escalating tensions.

"China should also make clear that if North Korea launches missiles that threaten U.S. soil first and the U.S. retaliates, China will stay neutral," the Global Times, which is widely read but does not represent government policy, said in an editorial.

Meanwhile, as the North may be planning its next ICBM launch, the US is stepping up military exercises with Japan and South Korea.

“On Thursday, U.S. and Japanese troops began an 18-day live fire exercise on the northern Japanese island of Hokkaido, which was to include rocket artillery drills and involve 3,500 troops. The Northern Viper drills are one of the scheduled exercises that Japan's Self Defense Forces conducts regularly with their U.S. counterparts and are not a response to the latest tensions. South Korean and U.S. troops are also gearing up for an annual joint drill from Aug. 21, called the Ulchi Freedom Guardian, in which up to 30,000 U.S. troops will take part.”

US officials were also discussing coordinated contingency plans on Friday to formulate exactly how the allies would respond to an attack.

“South Korea's national security adviser Chung Eui-yong and his U.S. counterpart H.R. McMaster spoke on the phone for 40 minutes early on Friday, a spokesman for the presidential Blue House in Seoul said. The two discussed responses to North Korean provocations and the security situation on the Korean peninsula, he said.”

Not surprisingly, analysts have compared the standoff between the two nuclear powers (the North is a recent, if untested, member of this club) to a modern day Cuban Missile crisis.  "This situation is beginning to develop into this generation's Cuban Missile crisis moment," ING's chief Asia economist Robert Carnell said in a research note. "While the U.S. president insists on ramping up the war of words, there is a decreasing chance of any diplomatic solution."

Judging by the markets' reaction in the past 48 hours, this troubling reality has finally filtering through to risk assets.