North Korean Economy Watch

According to the Choson Ilbo:

South Korean intelligence officials breathed a sigh of relief on Sunday. They had finally located Jon Il-chun, the head of a special department in North Korea’s Workers Party that manages Kim Jong-il’s slush fund. Jon, who had eluded intelligence officials for the past six months, was finally spotted on a North Korean TV broadcast featuring one of leader Kim Jong-il’s so-called on-the-spot guidance tours in Pyongyang.

The 69-year-old Jon went to high school with Kim (68) and was appointed head of the department, known as Room 39, early this year. It manages 17 overseas branch offices and around 100 trading companies and even owns a gold mine and a bank. The US$200-300 million those companies make each year is funneled into Kim’s secret bank accounts around the world.

Room 39 is targeted each time the U.S. and other foreign governments apply financial sanctions against North Korea. Kim replaced its head early this year because the former director, Kim Tong-un, was put on an EU list of sanctioned individuals late last year, making it impossible for him to manage the leader’s secret overseas bank accounts.

Due to the importance of the department and the clandestine nature of its business, the director of Room 39 rarely appears in public, but he sometimes accompanies Kim Jong-il on guidance tours when they involve organizations linked to Kim’s slush funds, an intelligence official said.

In the TV clip on Sunday, Jon is seen with Kim on an tour to Hyangmanlu, a popular restaurant, and Sonhung food manufacturing plant. A North Korean defector who used to live in Pyongyang, said the restaurant was built in the 1990s by a wealthy ethnic Korean from Japan and is located in a busy part of Pyongyang. “It was always packed with wealthy party officials,” the defector said, adding the party manages the restaurant so the entire proceeds probably go into Kim Jong-il’s coffers. He added there is a strong possibility that the food factory also belongs to the party.

The last time Jon appeared on North Korean TV was on June 20, at the opening of a mine in Yanggang Province. A North Korean source said the Huchang Mine is a famous copper mine that had been closed for some time but must have reopened. “Judging by the fact that Jon took part in the opening ceremony, it appears to be one of many mines run by Room 39.”

Jon was also spotted at Kim’s inspections of two fisheries companies last year and one this year. A Unification Ministry official said, “North Korean exports of fisheries products are handled by the party or the military and they’re sources of revenue for Kim Jong-il’s slush fund.” Fisheries products accounted for the second largest North Korea’s W1.64 trillion exports to South Korea last year, amounting to W173 billion or 16.3 percent. Textiles totaled W477 billion or 44.8 percent.

“This is one of the reasons why we blocked imports of North Korean fisheries products” following the North’s sinking of the Navy corvette Cheonan, the official said.

Additional Information:

1. Michael Madden has written a biography of Jon Il-chun here.

2. Here is a satellite image of the Hyangmanru Restaurant.  Here is a satellite image of the Sohung Foodstuff Factory (right next door).

Read the full story here:
Elusive Manager of Kim Jong-il’s Slush Funds Pops Up Again
Choson Ilbo
12/15/2010

Pictured above is the location of the First Caribbean International Bank

According to the Daily NK:

The existence of a secret bank account operated by the No.39 Department of the Chosun Workers’ Party has been publicly confirmed for the first time, bringing yet more attention to bear on the activities of banks in one of the western world’s renowned tax havens.

The No.39 Department, which is responsible for the management of Kim Jong Il’s private funds, holds the bank account with the British Virgin Islands branch of First Caribbean International Bank (FCIB), a prominent bank in the Caribbean region.

According to an expert source familiar with China and North Korea, the No. 39 Department’s secret overseas account exists under the name “Hana Holdings”. It is apparently held with the Road Town branch of the bank, which is based in Barbados and has branches in 17 countries.

Explaining the importance to North Korea of the No.39 Department account, the source told Daily NK, “Due to recent UN Security Council sanctions, the No. 39 Department is experiencing considerable difficulties with its overseas financial trade. Currently, excluding Chinese banks, their only active overseas account is that held with FirstCaribbean International Bank.”

Also, he added, “The only bank through which the No. 39 Department can make overseas transfers is FirstCaribbean International Bank in the British Virgin Islands, since their other secret bank accounts are all blocked.”

He said, “In cases of normal trade relationships with other companies, it used to be possible to transfer the money overseas from China. However, those routes are blocked as well. Since United Nation’s financial sanctions against North Korea make it difficult for North Korea to transfer money to accounts in third countries from Chinese banks, all foreign currency earning units including the No. 39 Department are experiencing the same difficulties.”

Generally, the No. 39 Department works by transferring money from secret overseas bank accounts to accounts with Chinese banks for money laundering.

The source explained, “No. 39 Department moves the management funds from third countries to FirstCaribbean International Bank, then sends the money to the Bank of China until it can be transferred to a North Korean bank or withdrawn.”

According to the source, the person in charge of transfers between FirstCaribbean International Bank and Bank of China is dispatched by the No. 39 Department under a false name. Also, the official allegedly travels to China frequently to deal with problems involving trade with the Chinese bank.

News of the FCIB account will not be too surprising to North Korea economy watchers. Entities in the British Virgin Islands were already suspected of doing business with the North Korean regime before this latest revelation because of the islands’ connection to the activities of Taepung International Investment Group.

The annual returns of the Taepung Group, as it is more commonly known, show that it was originally set up in September, 2006. However, it became better known early in 2010 when it was placed at the center of efforts to revive the North Korean economy through the creation of a state development bank.

Registered in Hong Kong, its only shareholder as of its 2010 Annual Return was Taepung International Investment Holdings Ltd, whose registered address is in Road Town, British Virgin Islands.

According to the same return, obtained by a keen observer of North Korea’s illegal activities, Ken Kato, the Taepung Group’s corporate secretary is Sai Ying Company Ltd, whose only shareholder, and corporate director, is JYBD Holdings Ltd. JYBD Holdings Ltd’s registered address is the same one in Road Town, British Virgin Islands.

This is not the first time that FirstCaribbean International Bank has run into trouble, either. In 2008, it was indicted on 113 charges of “failure to report suspicious transactions” between 2001 and 2005 by the Belize Financial Intelligence Unit (FIU).

However, the charges were dropped because, according to a Belize newspaper, they were threatening to destabilize the country’s financial sector. Instead, First International was ordered to pay for both an electronic reporting system for the country and the refurbishment of two parks.

There are known to be a substantial number of other North Korean accounts held in countries around the world. At the time of the report completed by the 1718 Committee (North Korea sanctions committee) under the UN Security Council last July, North Korean banks were said to hold a total of 39 accounts with 18 banks located in 14 countries. Allegedly, these accounts include a considerable number managed by the No. 39 Department.

17 of the 39 accounts were located with big Chinese banks like Bank of China, China Construction Bank and HSBC, according to the report. Bank of China in Macao had the largest number of North Korean accounts, while some other accounts were held with Beijing and Dandong branches.

In addition, at the time, North Korea had 18 accounts with 11 banks in 8 countries in Europe; Russia, Switzerland, Denmark, Hungary, Poland, Italy, Germany, and Belarus; also, it had one account each in Malaysia and Kazakhstan.

As the 1718 Committee report explained, “The DPRK… employs a broad range of techniques to mask its financial transactions, including the use of overseas entities, shell companies, informal transfer mechanisms, cash couriers and barter arrangements. However, it must still, in most cases, rely on access to the international financial system to complete its financial operations. In structuring these transactions, attempts are made to mix illicit transactions with otherwise legitimate business activities in such a way as to hide the illicit activity.”

And also according to the Daily NK:

The newly revealed secret overseas bank account held by the No. 39 Department is just one of several accounts set up in various locations around the world to manage Kim Jong Il’s funds.

However, due to the financial sanctions brought about by two nuclear tests and multiple missile launches, the No. 39 Department’s secret overseas accounts are continuously shrinking. As one North Korean source in China put it, “Due to United Nation’s financial sanction against North Korea, the No. 39 Department’s management of its overseas secret accounts has become difficult.”

Now, due to the Cheonan incident, the U.S. is planning to put in place “customized” financial sanctions which incorporate existing UN Security Council and EU financial sanctions, so the No. 39 Department’s overseas accounts will only get more difficult to manage in the future.

The No. 39 Department’s overseas accounts, which allegedly contribute much to Kim Jong Il’s governing funds, are prime targets for financial sanction since they are key to transferring those funds generated by illegal activity.

According to intelligence authorities, the No.39 Department has a bank account with Daesung Bank in Pyongyang, and manages capital in some of the world’s most influential banks in Macao, Hong Kong, Germany, Japan, and England through a subsidiary of Daesung Bank, Gold Star Bank (Geumbyeol Bank) in Vienna, Austria.

The $25 million which was frozen in Banco Delta Asia in 2005 was allegedly known to be some of Kim Jong Il’s governing funds managed by the No. 39 Department.

Radio Free Asia reports that even the Luxembourg government seems likely to implement any new sanctions, quoting them as saying, “We are keeping a close eye on the illegal activities which can take place through North Korea’s overseas accounts.”

The No. 39 Department has 17 overseas branches, 100 trading companies and banks under its auspices. They generate foreign currency through loyalty funds collected from each agency and management of hotels and foreign currency stores. Also, they trade the country’s natural resources including pine mushrooms, gold and silver.

The department is also in charge of the production of “supernotes,” high quality counterfeit $100 bills, and has a role in weapons and the illegal drugs trade.

The funds are mostly spent on the living costs of the Kim family and the patronage network required to maintain his coterie of high officials. In 2008, the sum of luxury goods purchased by North Korea was estimated to be more than $100 million. For example, immediately prior to the anniversary of Kim Il Sung’s birth on April 15th, North Korea imported approximately 200 high grade vehicles from China.

Since foreign currency generation started to become difficult due to the sanctions, Kim Jong Il has allegedly revived the No. 38 Department, which used to be in charge of overseas currency earning and was only merged with the No. 39 Department in September of 2009, and replaced the head of No. 39 Department with Jeon Il Choon, an old high school friend.

As Kim Kwang Jin, a North Korean defector who worked for the Northeast Asia Bank of North Korea, pointed out in a recent press interview, “The UN Security’s North Korea sanctions and the United States’ Banco Delta Asia sanctions must have caused the shrinking of North Korea’s overseas accounts. It is possible that North Korea could try to open accounts under phantom company names to continue with its financial trades.”

They have been in the news quite a bit recently.

According to the Donga Ilbo:

The U.S. has reportedly confirmed that nine of the 15 financial institutions North Korea operates overseas are involved in illegal activity.

Accordingly, the nine and more than 20 other institutions and individuals, including financiers who oversee the institutions, will be subject to Washington’s new financial sanctions announced against Pyongyang.

A government source in Seoul said Wednesday, “The U.S. government and intelligence are pointing to Kim Tong Myong, president of Danchon Commercial Bank of the North. The bank helped to amass slush funds overseas for the North.”

“Washington judges that organizations subject to Executive Order 13382, which regulates weapons of mass destruction, are also involved in other activities, including the illegal trade of luxury goods and money laundering. The U.S. is considering including many such organizations in the new executive order.”

Under Executive Order 13382, three financial institutions and 18 trading companies were subject to financial sanctions. The imminent addition of six more North Korean financial institutions abroad will further put the Stalinist country in a bind.

On Washington’s plan to impose additional sanctions against Pyongyang, South Korean Foreign Minister Yu Myung-hwan said, “Measures designed to impose specific sanctions on organizations and individuals and freeze assets will come in two weeks.”

And according to the Choson Ilbo:

Hong Kong financial authorities are inspecting all banks in the territory to find out if North Korea’s Taepung International Investment Group has opened secret accounts there. Taepung has the unenviable task of attracting foreign investment to the North.

According to information obtained by the Chosun Ilbo, the Hong Kong Monetary Authority in late July asked banks to report no later than Aug. 3, if they had engaged in “any kind of transactions” with four companies over the past six years.

The four are Taepung International Investment Hong Kong, Taepung International Investment Holdings Virgin Islands, Taepung International Investment Group, and Taifung (Taepung’s Chinese pronunciation) International Investment Group.

This was the first time Taepung has been targeted for financial sanctions by a third country.

A source in Hong Kong said it seems authorities have asked all Hong Kong branches of about 190 banks from the U.S., Europe and Asia for data about the four Taepung affiliates and two Iranian firms.

Taepung Hong Kong is believed to be a paper company. In April it registered at Rm.# 2508, Lippo Centre, 89 Queensway, Hong Kong, but the only office at the address is a local law firm.

Read the full stories here:
US: 9 Illegal NK Financial Entities Abroad Confirmed
Donga Ilbo
8/5/2010

Hong Kong Looks for Secret N.Korean Accounts
Choson Ilbo
8/5/2010

According to the Choson Ilbo:

Luxembourg has promised to cooperate with UN and U.S. financial sanctions against North Korea, Radio Free Asia reported Wednesday.

A spokesman for Luxembourg’s Finance Ministry told RFA that the country is closely watching for any illegal activities by the North using offshore accounts and will take “appropriate legal steps” if it finds them.

He claimed Luxembourg regularly updates domestic laws in accordance with international norms to monitor and punish those involved in illegal activities.

The country is committed to implementing sanctions against the North under UN Security Council Resolution 1874, he added.

In March, the Daily Telegraph said North Korean leader Kim Jong-il has a US$4 billion slush fund stashed away abroad in case he has to flee the North. Kim’s operatives “withdrew the money — in cash, in order not to leave a paper trail — and transferred it to banks in Luxembourg,” it said.

But at the time, the office of the grand duchy’s prime minister said it had no information about North Korean financial assets and there was no need to check. Although Luxembourg is a member of the EU, it is not easy to keep track of bank accounts there because it has a different bank payment and settlement system from other members.

On July 22, Hong Kong started a legal review of Taepung International Investment Group, a North Korean firm founded to attract foreign capital, and other North Korean companies.

Open Radio for North Korea on Wednesday quoted a North Korean source as saying the country’s former ambassador to Switzerland Ri Chol returned to the North in March to make sure Kim Jong-il’s secret accounts overseas are safely handed over to Kim Jong-un, his son and heir apparent.

Read the full story here:
Luxembourg to Help Track N.Korean Bank Accounts
Choson Ilbo
7/29/2010

According ot the Choson Ilbo:

Hong Kong government investigators have inspected an office in the territory belonging to North Korea’s Taepung International Investment Group as part of U.S.-led financial sanctions against North Korea. Taepung is charged with attracting foreign investment to the North.

Investigators say that the company registered itself under the address Rm.# 2508, Lippo Centre, Hong Kong with the authorities, but the only office at that address is the Law Office of Ho, Wong and Wong.

Companies registry documents obtained by the Chosun Ilbo show a complicated network of related businesses. It was established in April 2006 with parent company Taepung International Investment Holdings owning all of its shares. Taepung is capitalized at 20 million Hong Kong dollars (W3.2 billion).

It registered a company called Saiying, also listed at the Lippo Centre address, as its corporate secretary, which serves as a bridge with the Hong Kong government. China Deals Finder, which was in turn registered as the corporate secretary of Saiying, also has the same address.

The parent companies of both Saiying and CDF are registered under the same address in tax haven the Virgin Islands. They are paper companies capitalized at 50,000 and 10,000 dollars respectively and have shifted addresses, board of directors and secretaries several times. The law office of Ho, Wong and Wong handled the reporting of each change.

“It appears that Taepung turned to the aid of a legal expert to conceal the identity of its true owner and make it difficult to track its financial activities,” said a financial expert in Hong Kong.

The Hong Kong government has stressed its intend to comply with UN resolutions  According to Yonhap:

The government of Hong Kong affirmed its commitment Friday to continue implementing punitive U.N. sanctions imposed on North Korea to end its nuclear ambitions.

“Hong Kong will continue to exercise vigilance in enforcing our regulation to effectively implement the United Nations Security Coucil sanctions against DPRK,” Josephine Lo, an official at the Commerce and Economic Development Bureau of the Hong Kong government, told Yonhap News, using the North’s official name, the Democratic People’s Republic of Korea.

“Our law enforcement agencies will take appropriate actions on those found in violation of the laws,” she said.

The comment was made after U.S. Secretary of State Hillary Clinton’s announcement Wednesday that the U.S. will hit North Korea with a new set of sanctions to punish it for its sinking of a South Korean warship and prevent it from further provocations.

Those sanctions will “strengthen our enforcement of U.N. Security Council resolutions 1718 and 1874″ adopted after North Korea’s first and second nuclear tests in 2006 and 2009, Clinton said at a joint press conference in Seoul after a meeting with South Korea’s foreign and defense ministers.

Hong Kong legislated what is called the U.N. Sanctions Regulation in June 2007 to implement the U.N. Security Council Resolution 1718, according to Lo.

In January, Hong Kong amended the regulation to implement the new and expanded sanctions against North Korea under the Security Council Resolution 1874, she said.

A source here said earlier Friday that the United States has identified about 200 bank accounts with links to North Korea, and that the country is expected to freeze some 100 of those suspected of being used for weapons exports and other illicit purposes banned under U.N. resolutions.

The U.S. State Department said the U.S. will carry out new sanctions within two weeks to cut off money from illicit trafficking of weapons of mass destruction and counterfeit currency or luxury goods flowing into the North Korean leadership.

North Korea has bristled at the announcement of new sanctions and Seoul’s plan to conduct large-scale joint naval exercises with the U.S., claiming the moves pose grave threats to regional peace.

Read the full stories here:
Probe Reveals Elusive Structure of N.Korean Company
Choson Ilbo
7/26/2010

Hong Kong to continue implementing U.N. sanctions on N. Korea
Yonhap
Kim Young-gyo
7/23/2010

According to the Joong Ang Daily:

Two men near the top of the North Korean power structure are competing against each other to become foreign investment czar for the cash-strapped country, according to sources with knowledge of North Korea.

North Korea experts say the contest could influence who eventually succeeds Kim Jong-il.

The sources told JoongAng Ilbo yesterday that Jang Song-thaek and O Kuk-ryol, both vice chiefs of North Korea’s National Defense Commission, are competing over who can attract more foreign investment to the North. The National Defense Commission, the country’s top state organization, is chaired by Kim.

“O Kuk-ryol dominated the foreign investment coming into the North because of his military power,” said one of the sources, “but he is in a hegemony struggle in that area with Jang Song-thaek, who thrust himself into foreign investment promotion later than [O Kuk-ryol].”

Jang is the husband of Kim Kyong-hui, Kim’s younger sister, and is one of Kim’s close confidants. Jang was also promoted to vice chairman of the National Defense Commission on June 7 at the Supreme People’s Assembly.

The sources said O, since being appointed a vice chairman of the National Defense Committee in February 2009, has capitalized on his position to expand his influence in attracting foreign investment.

O and his aides established Choson Kukje Sanghoe (Korean International Trading Company) as the organization solely responsible for foreign investment promotion and received approval for the organization from the presidium of the Supreme People’s Assembly on July 1, 2009.

Meanwhile, Jang named Park Chol-su, a Korean-Chinese businessman, president of Korea Taepung International Investment Group, which he re-purposed to attract foreign investment.

The company initially belonged to the cabinet, but Jang absorbed it into the National Defense Commission and announced the establishment of the re-purposed company in a January 20 report from the official Korea Central News Agency. The news report said Kim Jong-il issued an “order” that the state guarantee that Taepung be able to attract foreign investment.

“O Kuk-ryol is very displeased that Jang jumped into the foreign investment business that he led,” said the sources. “Currently, Choson Kukje Sanghoe and Korea Taepung International Investment Group are vying against one another.”

The sources said that the power struggle is already being watched with concern by the State Security Department, the North’s supreme intelligence agency.

The agency, the sources said, suspects that China is behind Taepung and is trying to control the North Korean economy by injecting capital through Park and the group. The sources said the agency is hesitant to report its suspicions to Kim, given his close relationship to Jang.

Jang has cultivated power through economic projects Kim has entrusted him with, such as a project to build 100,000 houses in Pyongyang. Since he was promoted to vice chairman last month by Kim, he is thought to have increased his political clout as well.

Ri Je-kang, a rival with Jang, also died in a mysterious, recent traffic accident.

“If a rivalry between Jang Song-thaek and O Kuk-ryol, both key axes of North Korean power, becomes a full-fledged power struggle, it could have a subtle effect on a North Korean succession scenario,” said Kim Yong-hyeon, professor of North Korean Studies at Dongguk University.

Read the full story here:
Bigwigs in North vie for power over investments
Joong Ang Daily
7/5/2001

According ot the Choson Ilbo:

North Korea in March restored a special department in the Workers Party codenamed Room 38 which manages leader Kim Jong-il’s coffers and personal slush funds, it emerged Monday. The North last fall merged Room 38 with Room 39, which manages party slush funds.

“Rooms 38 and 39 were merged to simplify Kim Jong-il’s slush funds,” said a North Korean source. “But when it became difficult to secure hard currency due to international sanctions, Room 38 seems to have been restored because there was a feeling that Room 39 alone can’t meet the need.”

Room 38 is reportedly led by Kim Tong-il, who heads three regional departments in charge of earning hard currency.

Room 39 tries to maximize earnings from gold and zinc mining and farming and fisheries. It also manages stores and hotels exclusively for foreigners in Pyongyang. Room 39 seems to have suffered badly due to the recent suspension of inter-Korean trade. “Taesong Bank and Zokwang Trading, which received remittances from Mt. Kumgang tourism, are both controlled by Room 39, and is also in charge of the exports of agricultural and fisheries products,” said a government source.

Kim Jong-il needs dollars to maintain the party elite’s loyalty to him and his heir presumptive. He is said to have told party bigwigs in February, “From now on I will judge your loyalty based on the amount you contribute to the fund.” His son Jong-un is also said to be amassing separate slush funds for his own use.

But international sanctions on exports of weapons, counterfeit dollars, fake cigarettes and drugs remain in place, and the United States is pushing ahead with additional financial sanctions over the North’s sinking of the South Korean Navy corvette Cheonan in March. Pyongyang was dealt a heavy blow in 2005 when the U.S. froze US$25 million in the Banco Delta Asia in Macao which was apparently for Kim’s personal use.

Kim earlier this year appointed his high school friend Jon Il-chun head of Room 39. Jon was also named chairman of the National Development Bank, established early this year with a view to conducting normal international financial transactions to induce foreign investment. “North Korea seems to be planning to divert part of foreign investment to Kim’s slush fund,” said a government official.

NK Leadership Watch has more. 

Read the full story here:
Kim Jong-il Restores Special Department to Swell Coffers
Choson Ilbo
6/24/2010

According to Yonhap:

North Korea invited a group of Chinese investors to its joint factory park with South Korea early this month, raising suspicions about its intent amid strained inter-Korean relations, an official here said Tuesday.

About 20 business executives, led by senior officials of North Korea’s state investment group, visited the industrial complex in the border town of Kaesong near the west coast on May 1, a Unification Ministry official in Seoul said.

More than 110 South Korean firms operate there to produce labor-intensive goods by employing 42,000 cheap but skilled North Korean workers. The joint park, which began operating in 2004, is considered the last remaining major symbol of reconciliation between the divided Koreas.

“We’re not clear about what the North is trying to achieve by inviting the Chinese investors,” the Unification Ministry official told reporters on the condition of anonymity.

The official said the investors visited two companies in the factory park and asked general questions about their operations while being escorted by North Korean authorities.

Under an agreement with South Korea, North Korea is allowed to draw investors from other countries. The visit comes after North Korea either seized or froze South Korean assets at a joint mountain resort on its east coast last month.

On April 9, North Korea said it would also “entirely review” the Kaesong venture with South Korea if relations between the two sides do not improve.

And according to the Choson Ilbo:

The businessman who has been put in charge of wooing foreign investment to North Korea visited the inter-Korean Kaesong Industrial Complex on May 1 along with some 15 investors from China and Hong Kong.

Sources said Pak Chol-su, who heads the Taepung International Investment Group, toured a handful of firms and a water purification plant based in the complex as part of the one-day visit. They were escorted by a deputy head for the complex development project.

North Korea hired Pak, an ethnic Korean from China, in January as president of Taepung to attract foreign investment and to develop the North’s industrial complexes. Kim Yang-gon, the director of North Korea’s Workers’ Party’s United Front Department who heads the board of the company’s directors, accompanied North Korean leader Kim Jong-il on his recent trip to China.

Pak is also assistant chief of a state development bank North Korea opened recently to handle international financing operations.

There are rumors that North Korea is seeking to build industrial complexes in Sinuiju and other locations, said Cho Bong-Hyun, a North Korea analyst with the Industrial Bank of Korea. “It’s possible that Pak took Chinese investors to the Kaesong Industrial Complex to demonstrate that Chinese capital could be invested in North Korean labor.”

The South Korean Ministry of Unification remains publicly uninterested.  According to KBS:

South Korea’s Unification Ministry says it does not give much weight to a North Korean investment group’s reported visit to the Gaeseong Industrial Complex in North Korea with a group of Chinese investors.

A ministry official told reporters Tuesday morning that Seoul does not consider the Taepung International Investment Group a company officially representing the North Korean government and thus is not overly concerned about the visits.

The official added that recently the North has often been taking Chinese investors on tours of Gaeseong.

Institute for Far Eastern Studies (IFES)
NK Brief No. 10-05-11-1
5-11-2010

As North Korean leader Kim Jong Il spent four nights and five days in China, meeting with President Hu Jintao, Premier Wen Jaibao, and other top Chinese leaders, it appears that the issue of bilateral economic cooperation was high on the agenda, and was discussed in depth.

‘Strengthening economic and trade cooperation’ was one of the five proposals for bolstering PRC-DPRK relations made by Hu Jintao during the May 5 summit meeting with Kim Jong Il, giving some indication of just how much emphasis he and Kim were putting on economic cooperation during the latest visit.

Hu stated that strengthening cooperation between Beijing and Pyongyang would help both countries build their socialist systems, and would be in their shared interests as it would further development and help to bring peace, stability and prosperity to the region. According to China Daily, the five suggestions made by Hu Jintao are as follows:

1) To maintain high-level contacts. The leaders of the two countries should keep in touch by exchanging visits, as well as sending special envoys and messages.
2) To reinforce strategic coordination. The two sides should exchange views in a timely manner and regularly on major domestic and diplomatic issues, international and regional situation, as well as on governance experience.
3) To deepen economic and trade cooperation. The relevant departments of the two governments should discuss and explore ways of expanding economic and trade cooperation.
4) To increase personnel exchanges. The two sides should expand exchanges in the cultural, sports, and educational fields, and the contacts between the youth in particular to inherit the traditional friendship from generation to generation.
5) To strengthen coordination in international and regional affairs to better serve regional peace and stability.

In response, Kim Jong Il expressed his appreciation for Hu Jintao’s heartfelt invitation and warm greeting, and agreed with Hu’s five suggestions for developing bilateral cooperation. He highlighted the construction of a new bridge over the Yalu River as the latest sign of friendly cooperation between China and North Korea, and added that he “welcomes investment in North Korea by Chinese companies and boosting bilateral working-level cooperation based on the principle of mutual prosperity.”

Economic issues were at the heart of Kim Jong Il’s meeting with Premier Wen Jiabao, as well. Following their meeting, Wen said, “PRC-DPRK economic cooperation has great potential,” and that he actively supports bilateral efforts. He stated that he had high hopes for infrastructure projects and other cooperative efforts in the border region.

He went on to say, “China actively supports North Korea’s economic development and improvements in the lives of its people,” and that he would like to introduce to North Korea “Chinese-style know-how” by sharing China’s experiences with reform and economic construction.

In October of last year, Premier Wen introduced the “Chang-Ji-Tu Development Plan” during his visit to North Korea, pushing hard for the North’s cooperation in developing the border region. That, along with North Korea’s extension of the contract giving Chinese companies access to Rajin Port and the latest talks during Kim’s visit to China give a clearer picture of the future direction of PRC-DPRK cooperative economic efforts.

The Chang-Ji-Tu plan to develop the Jilin and Tumen River regions calls for the establishment of an economic ‘beltway’ by 2020, and the revival of the antiquated industrial areas of China’s three northeastern provinces. To be successful, the plan requires North Korean cooperation on securing access to the East Sea. In 2008, North Korea granted China usage rights to Pier 1 in Rajin Port, and then signed an agreement with China last November on the joint development of the port into an ‘international distribution hub’ providing a link for China to the global market. China’s Jilin Province has already earmarked 3 billion yuan (500 billion won) for Rajin Port’s development.

This, along with the construction of a new border-crossing bridge on the Tumen River and other similar projects, reflects the infrastructure development plans for the border region. Construction on the new 33 meter-long bridge began last October, and China is bearing the burden of a 1.7 billion yuan (290 billion won) price tag. In March, China also began restoration of the bridge over the Tumen River linking Hunchun and North Korea, and is expected to move forward quickly with a road construction project linking the bridge to Rajin Port.

Another cooperative effort is focused on the development of the Hwangeum Industrial Complex, a free trade zone on Hwanggeum Island, in the Tumen River. Ryongaksan General Trading Company, which currently holds the development rights to Hwanggeumpyeong and Uihwa islands, is actively seeking to attract foreign investment. Kim Jong Il’s latest trip to China is seen by some as an opportunity to push for increased Chinese investment and assistance in developing the region.

Workers’ Party of Korea Unification Strategy Department Director Kim Yang Gong, as chairman of the Korea Taepung International Investment Group, traveled with Kim Jong Il in China, and it appears to have been in order to more strongly call for investment in North Korea, and the development of Rajin Port, in particular.

Beijing permitting North Korean sight-seeing tours and joint development in its three northeastern provinces indicates its support for the increasing pace of bilateral economic cooperation with Pyongyang.

According to the Daily NK:

The chairman of North Korea’s State Development Bank, Jeon Il Chun visited China on April 8, reportedly to try and bring Chinese investment to Daebong Mine, located near Hyesan, Yangkang Province.

Daebong Mine is one of North Korea’s major gold mines, managed under the auspices of the No. 39 Department of the Central Committee, a special department charged with raising funds for Kim Jong Il’s personal use. Jeon Il Chun is the person in charge of the No. 39 Department.

Attempts to sell shares in a gold mine directly controlled by the 39 Department, Kim Jong Il’s own private safe, to China seem to indirectly imply that Kim is suffering from a debilitating foreign currency supply crisis.

One Daily NK source in China who is well-acquainted with North Korean affairs reported that while Jeon was in China, he met with the management of three or four Chinese enterprises which already have investments in North Korea, and suggested investment conditions under which the North could transfer some of its mineral rights to them and receive capital investments in return.

The source said, “For now, as far as I know, executive managers of the No. 39 Department have been in contact with Chinese enterprises. Since the Workers’ Party is trying to sell shares in a gold mine, it seems the funding of the Party might be serious.”

“It is not clear whether or not this attempt was done on Kim Jong Il’s instructions, but attracting foreign investment in a gold mine is not a commonplace affair,” the source pointed out, adding that an investor has not yet been put in place.

What is the Daebong Mine for?

The Daebong Mine is a relatively large gold mine on the border of Woonheung and Gapsan in Yangkang Province. Until 2001, a Yangkang provincial foreign currency earning enterprise and the foreign currency earning department of the People’s Safety Agency jointly managed it. However, in May, 2002, it became a No. 39 Department affiliated enterprise.

The No. 39 Department has been raising private funds for the leader and Party operations under the Finance and Accounting Department of the Central Committee since the mid-1970s. According to defectors, it has the highest authority and the largest funds of all North Korea’s foreign currency earning enterprises. Especially, it has the ability to mobilize tremendous financial resources since it manages and controls supplies of gold and silver and rare non-ferrous metals.

A source from Yangkang Province explained, “According to Chongjin University of Mining and Metals and Kim Chaek University of Technology, the purity of the gold from the Daebong Mine is more than 76 percent, while production from Hoichang and Eunsan in South Pyongang Province is 63 percent and 61 percent respectively. More than 150kg of solid gold is produced annually, so this mine is known as the ‘loyalty mine’.”

“People say that the government earns four or five million dollars a year through this mine. Neither Yangkang Provincial Committee nor Hyesan Municipal Committee is involved with the business of the mine.”

The source added, “Since the No. 39 Department deals with the mine, only those discharged soldiers with good family backgrounds are dispatched there by the Central Committee. In October of last year, around 200 discharged soldiers with good family backgrounds came to the mine.”

Almost all the gold produced in the Daebong Mine is stored in Swiss and Austrian banks in gold bars.

A Chinese company had a contract with the DPRK’s Musan Mine which has been canceled for an unknown reason.

Click here to see what I believe is the mine’s location.

Read the full article here:
No. 39 Department Hawking Shares in Key Gold Mine
Daily NK
5/3/010
Lee Sung Jin