DPRK-Chinese mining deal

According to Yonhap:

North Korea and China are expected to sign an agreement on joint development of the North’s underground resources in the middle of this month in Beijing, a source here said Sunday.

“It has been learned that Pyongyang and Beijing are expected to conclude a deal to jointly develop North Korea’s underground resources on Feb. 15, one day before the birthday of North Korean leader Kim Jong-il,” said the source, noting the accord will be signed in Beijing between China’s Commerce Ministry and the North’s Joint Venture Investment Committee.

“Specifically, the two sides may agree to jointly develop natural resources such as gold, anthracites and rare earths under the bilateral deal. Following the agreement, the two countries are likely to establish a joint venture company in Hong Kong,” said the source, asking to remain anonymous.

Trade between North Korea and China reached US$3.06 billion in the first 11 months of last year, which marked a rise of 9.6 percent from the 2008 annual volume of $2.7 billion. Mineral resources like coals and iron ores account for over 30 percent of the North’s exports to China.

Chinese mining investors have had mixed results in the DPRK despite geographical proximity and monopsony purchasing power (the Chinese can offer lower prices because in many cases they are the only purchaser/investor).

At one point, a Chinese firm had a controlling share of the DPRK’s Hyesan Youth Copper mine (Satellite image here).  As best I can tell, the mine is no longer operable because of flooding from nearby dam construction.

A Chinese firm had also invested in the Musan Mine, the DPRK’s largest, conveniently located on the Chinese border (Satellite image here). This deal also fell trough (see here).

I have heard informally that Chinese mining investors do not particularly like doing business in the DPRK because their North Korean business partners routinely violate contract terms and local officials need to be bribed repeatedly.  Today Chinese mining firms operate across the world in both developing and developed countries, so why bother with the DPRK?

The particular deal mentioned in this Yonhap article is interesting because it hints that the Chinese and North Korean central governments are setting the terms for mining investment in the DPRK for the first time.  This will give local officials less room for post-contractual rent-seeking behavior and could smooth the way for regular/predictable business operations in the DPRK.

Again, centralized corruption is preferable to decentralized corruption for investors.

Read the full Yonhap story here:
N. Korea, China likely to ink deal on joint resource development
Yonhap
2/6/2011

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