The object, which the South Korean military said was no longer visible, was spotted two days after Pyongyang test-fired a ballistic missile - its second missile test in seven days.
"We don't see why dialogue can not take place in the current situation now", Liu insisted.
South Korean President Moon Jae-in is requesting help from the Vatican in easing tensions on the Korean peninsula. On Friday, North Korea condemned Moon's policy, saying dialogue can never be compatible with confrontation.
"On the basis of not violating the relevant (Security Council) resolutions, China maintains normal business and trade ties with the DPRK", foreign ministry spokeswoman Hua Chunying told reporters, using the initials of North Korea's official name.
That saw a medium-range Pukguksong-2, which Pyongyang said used solid fuel, travel around 500 kilometres. North Korea's media said more missiles will be launched in the future.
In an interview with "Fox News Sunday", U.S. Secretary of State Rex Tillerson said the ongoing testing is "disappointing" and "disturbing".
Cybersecurity researchers have found evidence they say could link North Korea with the WannaCry cyber attack that has infected more than 3 lakh computers worldwide, as global authorities scrambled to prevent hackers from spreading new versions of the virus.
Uruguay's U.N. Ambassador Elbio Rosselli, the current council president, said it was the 11th this year "which basically means a quantum leap and determined effort to acquire aggressive capabilities, and that is of major concern".
Nearly a month ago, Washington began discussions with China on strengthening United Nations sanctions.
The North's state-controlled KCNA news agency said Sunday's launch of a new intermediate-range solid-fuel rocket, which traveled about 500 kilometers (310 miles) and reached an altitude of 560 kilometers (348 miles), proved progress in North Korea's stated goal of acquiring full nuclear weapons capabilities to strike the USA mainland. "We flatly reject the press statement".
The Security Council first imposed sanctions on Pyongyang in 2006 and ratcheted up the measures in response to five nuclear tests and two long-range missile launches.
North Korea conducted two nuclear tests past year.