Why is North Korea doing this?

I suspect that China is worried about the prospect of a powerful and unpredictable NK. They will be just as worried about the assessments of Japan and South Korea which could lead to an arms race in NE Asia. The US can quickly supply these two countries with nukes, and it is hard to see how they would refrain from doing so as the power imbalance grows.

Beijing has never had to confront a frontline MAD scenario with a madman involved before. Ironically, MAD only works when the players are sane. So China will be thinking "what the hell have we created?" as any mushroom clouds will mostly be in their region. And never forget that, if their relationship with KJU goes pear-shaped, Shanghai is much closer to Pyongyang than Los Angeles.

So, I see the ultimate aim of KJU is to lead a world nuclear power to satisfy his own messianic ego as well as the vicarious ambitions of his deluded and malnourished people. He may see the US as the main enemy but he would also like to stand up to China. To this end, he will look for opportunities to use this power or the threat thereof. He will actively seek conflict.

Many in the west are still calling for a negotiated diplomatic solution. There are unlikely suggestions that NK will suspend their (now almost complete) nuclear program in exchange for the US partially withdrawing from the region. But would this be diplomacy or capitulation?

So far we have at least avoided war via diplomacy. So, did diplomacy work? Only if you consider diplomacy an end in itself, rather than a means to an end.

And the end has not arrived yet. Not even close.