By Jon Herskovitz

SEOUL, Dec 14 (Reuters) China should set up camps on its border to house North Korean refugees and it must stop harassing those who cross into its territory looking to escape from economic and political hardships, an analyst said today.

Marcus Noland, of the Institute for International Economics in Washington and an editor of a report relased in the past week on North Korean refugees, said: ''The refugee crisis is symptomatic of a much larger problem in North Korea''.

China considers North Koreans who cross its border illegally to be economic migrants who do not merit refugee status. Once returned to North Korea, they face prison and torture.

''China's response to the North Koreans has been one of harassment, arrests and forced return, as many as 200 a week in some periods,'' Noland told a group of reporters in Seoul.

His comments came ahead of talks involving the two Koreas, China, Japan, Russia and the United State in Beijing next week on ending the North's nuclear weapons programme.

Noland said both China and South Korea fear political instability in North Korea because of a possible influx of refugees and the costs of rebuilding the impoverished state.

Last month, the International Crisis Group think-tank said in a report that North Korea's October 9 nuclear test, the revival of inflexible controls on farming and trade and its rejection of international aid meant: ''the perfect storm may be brewing for a return to famine in the North.'' A famine in the late 1990s, which some experts said killed as much as 10 per cent of the North's 22 million people, led to a flood of refugees -- most of whom left via the border with China.

As many as 400,000 North Koreans are estimated to have fled through China, Noland said in a report for the U S Committee for Human Rights in North Korea.

''In the long run, the human rights issues will have to be dealt with,'' he said.

''With the help of South Korea, Japan, the United States and other interested countries, China should agree to the establishment of temporary refugee resettlement camps within its borders along with third-country commitments to financing and accepting refugees for permanent resettlement,'' Noland said.

Pyongyang's policies were the main cause of the refugee problem, he said.

''It is a systematic denial of basic human, civil and political rights combined with economic incompetence that creates this refugee flow,'' Noland said.

REUTERS BDP HT1457