Fearing North Korea's nuclear crisis is heading towards war, China's military has been studying intervention plans that would see it move to occupy the Stalinist state and block the possibility of war, sources say.

At the same time, North Korea experts in China are warning that a proposed naval blockade to prevent North Korean exports of missiles and other weapons of mass destruction will encounter kamikaze-type attacks from a desperate regime. The blockade will be discussed by Australia and 10 other countries at a two-day meeting starting in Brisbane today.

China's study of a pre-emptive invasion of North Korea was ordered by the Chinese Communist Party's "working group" on North Korea.

The People's Liberation Army concluded in the study that while the Chinese-North Korean border was only lightly defended, the PLA did not have the logistics capability to race down across two rivers to the Demilitarised Zone bordering with South Korea - where the North's Korean People's Army has massed artillery and armour - in time to stop a southward attack.

A senior Western diplomat said: "That this kind of thing is being considered in China tells us about the gravity with which this is being regarded in Beijing."

According to sources, the Chinese working group has concluded that China's economic interests in keeping regional stability and co-operative relations with the US outweigh its strategic stake in North Korea.

In March, China flexed its muscles against its long-term communist ally by shutting off an oil pipeline for three days to reinforce its warning against a planned missile test.

Beijing is not as concerned as many Western reports maintain about a potential flood of North Korea refugees into its Manchurian regions should the North Korean regime collapse. Nor is it worried about US troops facing it across the Yalu River border: it is confident that Korean nationalism would see the Americans off should the peninsula be reunified under the Seoul Government.

But Beijing is worried about the economic fallout from a Korean conflict. Its two-way trade with South Korea, worth $A65 billion a year would be hit.

Chinese diplomats are redoubling efforts to bring the North Koreans and Americans back to negotiations after an inconclusive meeting in Beijing in April. They are hoping for a second round soon, but Washington is insisting on wider regional participation while Pyongyang says only the US can do a deal.

Diplomats here are more puzzled by Washington's objectives than they are about those of the Pyongyang regime, which wants the aid and security guarantees made in a 1994 agreement with the US that were never delivered.

Almost certainly, the North Koreans will want to hold on to some level of nuclear deterrent.

It is not yet clear whether the Bush Administration's demand for Pyongyang to verifiably dismantle its nuclear program before any aid is discussed is a "softening up" tactic before some bargaining, or a deliberately impossible demand aimed at bringing down the regime.

A naval cordon of North Korea to prevent exports of mass destruction weapons would hit the regime's vital interests if it includes ballistic missiles. The $US600 million ($A895 million) earned annually from missile sales is Pyongyang's main source of hard currency.

Analysts in Beijing are taking seriously Pyongyang's warnings that would it consider interceptions of its ships and aircraft an act of war.