China is also North Korea's ally AND we owe China money.
What are you implying? Im sure China would prefer NK did something dumb and gave them an excuse to invade. Not only is China much more capable of handling such a large number of refugees than South Korea would be, it would also give China an excellent military strong point against the US.
Besides, US debt is worth much much more than NK will ever be.
Not that any large-scale war will break out anyway. The moment NK does something stupid it'll basically become a race to see whether the US or China takes control of it.