Archive for the ‘Musan Mine’ Category

North Korean iron ore continues flowing into China, reports suggest

Friday, August 12th, 2016

By Benjamin Katzeff Silberstein

Despite firm promises from Chinese officials of full sanctions enforcements, reports from Daily NK suggest that iron ore is still being exported in substantial quantities from North Korea. Sanctions allow imports of iron ore when proceeds benefit “livelihood purposes,” but this seems to be a very difficult criteria to ensure in practice:

Thousands of tons of iron ore exports from the North are pouring into China daily, despite UN Security Council sanctions issued in April that ban states from procuring minerals from the regime unless related to “livelihood purposes”, Daily NK has learned.
“The Chinese regions facing Musan County in North Korea are teeming with thirty- and forty-ton trucks loaded with iron ore,” a source in China with knowledge of North Korean affairs told Daily NK in a telephone conversation on August 11.
Sources in North Hamgyong Province corroborated this news.
The trucks, he added, are mostly transporting iron ore to a classification yard near Helong City in China. In the past, the railways near Helong running along the Tumen River border area were not frequently utilized. But recently China added express freight trains on this route, presumably to facilitate more expedient transport of North Korean iron ore to local steel mills. More broadly, the source asserted the development indicates Beijing’s future intentions to expand trade with the North.
Connecting dozens of 100-ton freight cars, the express trains transport some 2,000 tons in a single shipment, with several round trips transpiring daily. Moreover, the source noted, “Some cargo trucks transport goods from Musan Mine across the submerged bridge on Tumen River directly to steel mills in China.”
The partially underwater bridge, made by connecting slabs of rock large enough to permit vehicular transport, was constructed in the early 2000s to facilitate the Sino-North Korean iron ore trade industry. However, following the implementation of strong global sanctions earlier in the year, iron exports plummeted, rendering the bridge obsolete.
More recently, however, this crude piece of infrastructure is experiencing a resurgence, coming as quite a surprise to local Chinese residents. The source explained that goods passing through Chilsong Customs are checked thoroughly, item by item. Customs officers at the underwater bridge, on the other hand, merely record the total number of shipments passing through, making it the preferred conduit for proscribed goods.
The general rise in trade can also be noted in Dandong, the gateway to 70 percent of trade between the North and China. A source in the city told Daily NK earlier in the month that after the reopening of the aging Sino-North Korean Friendship Bridge, after yet another round of repairs, the volume of shipments has been on a steady uptick.
“Roughly 1,000 trucks, each with a 20-ton loading capacity, are laden with diverse goods and pulling into Sinuiju daily. That’s more than a ten-fold increase,” she said.
Full article:
North Korean iron ore exports to China booming despite sanctions
Daily NK
Choi Song Min

DPRK mining investment woes (Musan)

Thursday, September 13th, 2012

UPDATE 2 (2013-1-17):  The latest issue of Digital Globe’s World View magazine contains information on the Musan Mine (page 7):

[…]In a New Year’s message, North Korea’s leader, Kim Jong-un, urged North Korea to become an economic powerhouse by improving productivity. He specifically mentioned the Musan Mine, as it is one of the largest iron ore mines in the region with a reserve of approximately three billion tonnes of ore.  This announcement comes after a Chinese investment firm, Tianchi Industry and Trade, pulled out of the mine in the early fall of 2012.  North Korea demanded a price increase of 20%, on top of the 50-year lease that had been in place since 2005.  With the price increase, Tianchi did not feel the location could remain profitable, and North Korea refused to renegotiate.  As a result, the associated smelter in China was shut down in September 2012.  The presents a loss for the Jilin provincial government in China, which had extended a rail line 42 kilometers to the border to transport ore north after it was processed at the smelter.  With the departure of the Chinese investment firm, the Musan Iron Ore Mine is currently operated by North Korea’s Ministry of Mines. The mine has the potential to produce 1.5 million tonnes of ore a year if the North Koreans can operate it at its former capacity under Tainchi.

UPDATE 1 (2012-10-17):  The Choson Ilbo has picked up on this story first reported in the Hankyoreh last month, yet they have a different English name for the Chinese company. According to the  article:

The Chinese apparently baulked at a price increase of more than 20 percent demanded by the North, although international iron ore prices are plummeting in the wake of the global recession. They won 50-year extraction rights for the mine in 2005.

A smelter in the Chinese province of Jilin near the border with North Korea and operated by Tianchi Industry and Trade, the Chinese partner to the Musan Mine, closed down in September, according to a source in Yanbian on Tuesday. The smelter used to process iron ore extracted at the mine.

The source added, “There’s been no progress in the implementation of plans to lay a railway line and a slurry pipeline between Nanping and Musan.”

Tianchi Industry and Trade turned down the North’s demand, saying it makes hardly any profit as is given wages for North Korean workers and transportation costs.

Tianchi, a private trading company based in Yanbian, has served as a conduit for iron ore produced at the Musan Mine to the Chinese market since the early 1990s. It obtained the extraction rights to the mine in 2005 after concluding a trilateral joint-venture contract with Tonghua Iron and Steel, a Chinese state-run iron and steel mill, and [North] Korea Ferrous Metals Export and Import Corporation.

Tianchi hired North Korean workers and extracted 1 to 1.5 million tons of iron ore at Musan every year, which it supplied to Tonghua and other companies.

But the first cracks in the deal appeared in 2009, and iron ore production had been intermittent since then and stopped completely this year.

The Jilin provincial government has also been hit because it already laid a 41.68 km railway line leading to the border town of Nanping since November last year.

ORIGINAL POST (2012-9-13): We have already heard about Xiyang. Today the Hankyoreh tells us about problems with the Musan Mine…

Pictured Above (Google Earth): Musan Mine

According to the article:

However, not all business between North Korea and China is rosy. An iron-smelting factory in Helong City, Jilin, that was visited on Sept. 5, had to close its doors. It used to be a place where iron from across the Yalu River was brought from North Korea‘s Musan iron mine and processed. A railroad was expected to run from the two cities by October of last year in order to increase the amount of iron brought into China. But the construction was never completed. A Chinese company called the Yanbian Cheon-ji Industry Trading Company had rights to the Musan mine for fifty years starting in 2005.

There are many guesses as to why this happened: “North Korea was asking for a price increase of 20% while the price of iron has declined in the rest of the world;” “There was trouble between the Chinese government and the new Kim Jong-un regime on negotiating development rights;” “There was a downfall of development due to differences with foreign investors about investing in electrical power.” No one knows clearly what the reason was, and there are still busy trying to figure out what is the real situation.

Here is the original story:
China adjusts to influx of cheap North Korean labor
Song Kyung-hwa


DPRK-China launch minerals – for – fertilizer program

Friday, August 19th, 2011

Pictured above (Google Earth): The Musan Mine, the DPRK’s largest.  See in Google Maps here.

According to the JoongAng Daily:

During his surprise May visit to China, North Korean leader Kim Jong-il secured free fertilizer and discounted food to help alleviate the impoverished country’s chronic food shortages.

A source in Beijing who monitors North Korea-China relations told the JoongAng Ilbo on Monday that Chinese officials agreed to provide 200,000 tons of fertilizer free of charge as well as 500,000 tons of corn at a discount in exchange for rights to North Korea’s abundant natural resources.

“When 200,000 tons of fertilizer is planted on North Korean soil, it can bring about a three-fold increase in the harvest,” the source said. “This can be the equivalent of giving 600,000 tons of food.”

The source added that China agreed to sell the 500,000 tons of corn for half of the international rate, which would be $30 per ton.

The corn, the source said, had already crossed the border into North Korea from northeastern China.

In exchange, Kim will allow China access to his country’s natural resources.

“The two parties agreed to participate in the extraction of buried rare earth minerals in Musan in Hamgyong Province,” the source said. “It’s quite a profit for China as it is thirsty for materials.”

North Korea is estimated to have around 20 million tons of rare earth minerals, which are vital in the production of high-tech goods.

The Beijing-based source said the agreement gives China the responsibility for the cost of building roads to transport the natural resources as well as lending equipment.

In exchange, North Korea will hand over 50 percent of the extracted rare earth minerals free of charge to China, with the rest to be sold to China at international market rates.

Meanwhile, other sources said that Kim also received a health checkup during his stay in China.

“When Kim Jong-il was visiting Yangzhou, he received a special examination from an oriental medicine doctor that the highest Chinese elite have gone to over the years,” a source familiar with North Korean issues said

The source added: “Kim Jong-il has never trusted China’s Western medicine. I heard from a Chinese official that Kim received an oriental medicine diagnosis by taking his pulse and that it did not involve drawing blood.”

Additional Information:

1. Here is a post linking to all the major DPRK food stories this year.

2. The media has reported on other DPRK food barter deals with Cambodia and Myanmar.

3. The role of the Musan Mine in DPRK-PRC relations has been quite interesting.  Here are previous posts on the mine.

Read the full story here:
North got fertilizer on Kim’s trip to China
JoongAng Daily
Chang Se-jeong


Pramod Mittal eyes stake in DPRK mines

Sunday, April 4th, 2010

According to the Economic Times of India:

Pramod Mittal, the younger sibling of steel tycoon LN Mittal and head of Global Steel Holdings, is negotiating with the North Korean government for a stake in the country’s Musan Iron Ore mines, estimated to hold reserves of more than seven billion tonnes. The move by Global Steel is aimed more at accessing the mineral resource, as the ore is in sharp demand with steelmakers expanding capacity and iron ore miners moving to a quarterly price regime to meet growing markets in Asia and Africa.

Mr Mittal, who is chairman of Global Steel, a closely-held company of the Mohan Lal Mittal family, had visited Pyongyang last week to talk to senior government officials to work out the modalities of a share of Musan’s reserves. The ML Mittal family consists of elder son LN Mittal, Pramod Mittal and younger brother Vinod Mittal, who looks after the Mumbai-based Ispat Industries. When contacted, Pramod Mittal declined to comment. “Our visit to North Korea is to further business interests. We are not looking for any stake in Musan,” he told ET .

According to people familiar with the development, Global Steel could likely be negotiating with Pyongyang for development rights to Musan for a fixed peiod, where Global Steel would do the mining and get to buy an agreed portion of the reserves. Typically, in the mining industry, such development rights are for a long term period of 20 to 50 years.

Global Steel, which is registered in the tax haven Isle of Man, has steelmaking operations in Bulgaria and Nigeria and a 20-year management contract to operate Zimbabwe Iron & Steel. Although Global Steel has a small steelmaking capacity of just more than 2 million tonnes, iron ore from Musan would not be used for Global Steel’s operations. Global Steel also owns two coal blocks in Mozambique where ArcelorMittal, controlled by elder brother LN Mittal, also has coal mines. While the Mittal family has maintained that Global Steel has no link to ArcelorMittal, the world’s largest steel company has been reportedly keen on Global Steel’s assets.

Two years ago, North Korea had granted development rights on Musan to China’s Tonghua Iron & Steel Group for a period of 50 years. However, Pyongyang recently terminated that agreement without offering any reason. People connected with the issue said Global Steel is negotiating with Musan on the amount of investment needed for developing the mines and also on building infrastructure, which is integral to any mining activity.

While the talks with Pyongyang is at an initial stage, under the previous agreement with Tonghua, the Chinese company had reportedly agreed to put in about 7 billion yuan, and had also planned to produce 10 million tonnes of iron ore each year. Of the total investment, about $240 million was for building roads and railways from Musan to Tonghua in China. The Musan iron ore mines are close to the Chinese border. The secretive North Korean government has recently been sending out feelers to global mining companies for developing its vast mineral deposits, said to contain one of the world’s largest reserves, closely rivalling Brazil.

The Musan Mine is the DPRK’s largest and satellite imagery of it can be seen here.

Here is a story about Tonghua’s Musan deal

Read the full story here:
Pramod Mittal eyes stake in North Korea’s Musan mines
The Economic Times
MV Ramsurya


2007 US Geological Survey published on North Korea

Wednesday, October 22nd, 2008

An advanced copy of the 2007 US Geological Survey of North Korea has been published. 

Here is the outlook from the author, John C. Wu:

For the next 3 to 4 years, the North Korean mining sector is likely to continue to be dominated by the production of coal, iron ore, limestone, magnesite, and zinc. Because of the continuing strong demand for minerals by China, its investments in North Korea’s mining sector are expected to continue to increase beyond its current investments in coal, copper, gold, iron ore, and molybdenum into other mineral commodities, such as nickel, crude petroleum, steel, and zinc. North Korea’s economy is expected to recover slowly but its real GDP is expected to grow at less than 1% during the next 2 years.

The whole report is fairly brief and worth reading in full.  You can download it here: usgs-dprk.pdf or read it on line here.


Download glitch fixed: North Korea Google Earth (version 11)

Thursday, August 14th, 2008

The most authoritative map of North Korea on Google Earth
Download it here

This map covers North Korea’s agriculture, aviation, cultural locations, markets, manufacturing facilities, railroad, energy infrastructure, politics, sports venues, military establishments, religious facilities, leisure destinations, and national parks. It is continually expanding and undergoing revisions. This is the eleventh version.

Additions include: Mt. Paegun’s Ryonghung Temple and resort homes, Pyongyang’s Chongryu Restaurant, Swiss Development Agency (former UNDP office), Iranian Embassy, White Tiger Art Studio, KITC Store, Kumgangsan Store, Pyongyang Fried Chicken Restaurant, Kilju’s Pulp Factory (Paper), Kim Chaek Steel Mill, Chongjin Munitions Factory, Poogin Coal Mine, Ryongwun-ri cooperative farm, Thonggun Pavilion (Uiju), Chinju Temple (Yongbyon), Kim il Sung Revolutionary Museum (Pyongsong), Hamhung Zoo, Rajin electrified perimeter fence, Pyongsong market (North Korea’s largest), Sakju Recreation Center, Hoeryong Maternity Hospital, Sariwon Suwon reservoir (alleged site of US massacre), Sinpyong Resting Place, 700 Ridges Pavilion, Academy of Science, Hamhung Museum of the Revolutionary Activities of Comrade Kim Il Sung, South Hamgyong House of Culture, Hamhung Royal Villa, Pork Chop Hill, and Pyongyang’s Olympic torch route. Additional thanks go to Martyn Williams for expanding the electricity grid, particularly in Samjiyon, and various others who have contributed time improving this project since its launch.

Disclaimer: I cannot vouch for the authenticity of many locations since I have not seen or been to them, but great efforts have been made to check for authenticity. These efforts include pouring over books, maps, conducting interviews, and keeping up with other peoples’ discoveries. In many cases, I have posted sources, though not for all. This is a thorough compilation of lots of material, but I will leave it up to the reader to make up their own minds as to what they see. I cannot catch everything and I welcome contributions.  Additionally, this file is getting large and may take some time to load.


North Korea Google Earth (Version 7)

Friday, December 14th, 2007

The most authoritative map of North Korea on Google Earth
North Korea Uncovered v.7
Download it here

koreaisland.JPGThis map covers North Korea’s agriculture, aviation, cultural locations, manufacturing facilities, railroad, energy infrastructure, politics, sports venues, military establishments, religious facilities, leisure destinations, and national parks. It is continually expanding and undergoing revisions. This is the sixth version.

Additions to the latest version of “North Korea Uncovered” include: A Korean War folder featuring overlays of US attacks on the Sui Ho Dam, Yalu Bridge, and Nakwon Munitians Plant (before/after), plus other locations such as the Hoeryong Revolutionary Site, Ponghwa Revolutionary Site, Taechon reactor (overlay), Pyongyang Railway Museum, Kwangmyong Salt Works, Woljong Temple, Sansong Revolutionary Site, Jongbansan Fort and park, Jangsan Cape, Yongbyon House of Culture, Chongsokjong, Lake Yonpung, Nortern Limit Line (NLL), Sinuiju Old Fort Walls, Pyongyang open air market, and confirmed Pyongyang Intranet nodes.

Disclaimer: I cannot vouch for the authenticity of many locations since I have not seen or been to them, but great efforts have been made to check for authenticity. These efforts include pouring over books, maps, conducting interviews, and keeping up with other peoples’ discoveries. In many cases, I have posted sources, though not for all. This is a thorough compilation of lots of material, but I will leave it up to the reader to make up their own minds as to what they see. I cannot catch everything and I welcome contributions.


Google Earth North Korea (version 6)

Sunday, November 11th, 2007

The most authoritative map of North Korea on Google Earth
North Korea Uncovered: Version 6
Download it here

kissquare.JPGThis map covers North Korea’s agriculture, aviation, cultural locations, manufacturing facilities, railroad, energy infrastructure, politics, sports venues, military establishments, religious facilities, leisure destinations, and national parks. It is continually expanding and undergoing revisions. This is the sixth version.

Additions to the newest version of North Korea Uncovered include: Alleged Syrian nuclear site (before and after bombing), Majon beach resort, electricity grid expansion, Runga Island in Pyongyang, Mt. Ryongak, Yongbyon historical fort walls, Suyang Fort walls and waterfall in Haeju, Kaechon-Lake Taesong water project, Paekma-Cholsan waterway, Yachts (3), and Hyesan Youth Copper Mine.

Disclaimer: I cannot vouch for the authenticity of many locations since I have not seen or been to them, but great efforts have been made to check for authenticity. These efforts include pouring over books, maps, conducting interviews, and keeping up with other peoples’ discoveries. In many cases, I have posted sources, though not for all. This is a thorough compilation of lots of material, but I will leave it up to the reader to make up their own minds as to what they see. I cannot catch everything and I welcome contributions.


China Investing Heavily in N.Korean Resources – Report

Thursday, April 12th, 2007

Choson Ilbo

Last year a Chinese company took a 51-percent stake in Hyesan Youth Cooper Mine in Yanggang Province, North Korea. Hebei-based Luanhe Industrial Group now has the right to develop the mine for the next 15 years.

North Korea also sold a 50-year development claim to the Musan iron mines, Asia’s largest open-air mine, to China’s Tonghua Iron & Steel Group. Since 2006, North Korea has sold the rights to develop more than 10 mines to Chinese firms.

KDB Research Institute, an affiliate of Korea Development Bank, has raised concerns with a report released Wednesday that details China’s intensive investment in North Korean natural resources. According to the report, since 2002 China has invested US$13 million (US$1=W932), more than 70 percent of its total investment in North Korea, in iron, copper and molybdenum mines.

The major investors come from the three northeast provinces of Heilongjiang, Jilin and Liaoning. They have moved the focus of their investment from small-scale, commercial opportunities to strategic deals to secure energy resources, the report said.

According to the report, China’s Wukang Group bought the rights to dig the Yongdeung mine, North Korea’s largest hard coal mine, and another Chinese company invested in a North Korean project to develop an oil field in the West Sea. The North has also allowed Chinese fishermen to fish off the coast of Wonsan, a North Korean port city on the east coast, in return for 25 percent of the catch.

Since North Korea lacks funds while China suffers from a shortage of natural resources the two are forming joint development projects, said KDB Research Institute researcher Chung Eui-jun, the writer of the report.

Andrei Lankov, a North Korea expert at Kookmin University in Seoul, said in the Wall Street Journal last July that the Chinese government seems to have made a strategic decision to encourage Chinese firms to invest in North Korea as a way to maintain its influence with its long-time ally in the post-Kim Jong-il era.


The Political Economy of Chinese Investment in North Korea

Wednesday, November 1st, 2006

Asian Survey
November/December 2006, Vol. 46, No. 6, Pages 898-916
Jae Cheol Kim
Professor of International Studies at the Catholic University of Korea, Seoul.

PDF here: chinainDPRK.pdf

China’s investment efforts suggest that it has begun to engage North Korea economically. By investing, the Chinese leadership has attempted to push the North to embrace economic reforms, which in turn could improve the North Korean economy and reduce the country’s potential for political instability. In order to lead the North to embark on reform policies, Beijing has tried to provide it with seed money and technology by encouraging Chinese companies to invest. This suggests that despite expectations and allegations from the West that China might abandon its long-time ally, China is committed to supporting North Korea.

The Chinese investment, however, has increasingly been influenced by commercial considerations. Officials in Beijing have stressed that economic exchanges with the North must be mutually beneficial. Chinese companies, which have become responsible for the majority of the investment, have paid increasing attention to market share and natural resources. That China has increasingly tried to gain economic advantage in the North suggests that Sino-North Korean relations are being transformed from being ideology-motivated to interestmotivated.

Despite a stiff increase over the past couple of years, it is hard to say that Chinese investment is either full-fledged or irreversible. Because the instability of North Korea prevents Chinese entrepreneurs from fully embracing the country, Chinese investment must be seen as a pilot project, with Chinese companies and entrepreneurs testing the water. Looking to the future, Chinese investment in North Korea is likely to increase. Despite problems, the Chinese leadership will probably continue to encourage further investment in an effort to exploit developmental opportunities while simultaneously curtailing the flow of direct aid to the North. In addition, China’s dynamic economic growth will propel its overseas investment. As China’s capital account is gradually liberalized, cash-rich Chinese companies will look for markets and resources abroad to fuel their development. The potential appreciation of the yuan will further force firms to relocate factories producing low-end products to countries where the labor cost is lower. Seen from this perspective, North Korea is a good candidate for future Chinese investment—if there is no major turbulence in bilateral relations.

North Korea has been reluctant to follow China’s path of reform and opening because it worried that the policy may create political problems. In an apparent response to China’s recommendation in the late 1990s for reform, for instance, Kim asked Beijing to respect “Korean-style socialism.” But China’s support for reform is not unconditional. Although Chinese leaders have repeatedly urged the DPRK to embrace market-driven reforms (even taking Kim Jong Il is on tours to see the results of China’s economic reforms), when North Korea decided to set up a special economic zone in Sinuiju, apparently without prior consultation with Beijing, China aborted the project by arresting Yang Bin, whom North Korea had designated head of the zone, in October 2002.

China, however, does not want to see turbulence on the Korean Peninsula, which could not only lead to the economic and political collapse of a socialist regime on China’s border but could also threaten regional stability. China thus has tried to sustain the Pyongyang regime by providing economic assistance–believing that reform and opening would not only revive the North Korean economy but also reduce the need for regular aid to prop up the regime, Chinese Premier Wen Jiabao said that the Chinese government would encourage more of its companies to invest and establish their businesses in North Korea.

For Chinese firms, the prime minister’s statement amounted to a government directive, with some entrepreneurs understanding that Wen’s statement was a signal for Chinese companies to invest.  Organizations were formed to smooth such investment, including the Shenyang Municipal Association of Entrepreneurs (Shenyangshi Qiyejia Xiehui), Dandong Municipal Economic Consultation Center for the Korean Peninsula (Dandongshi Chaoxianbandao Jingji Zixun Zhongxin), and Beijing Sino-Korea Economic & Cultural Exchange Company (Beijing Chaohua Youlian). They organized explanatory meetings on investment, drawing numerous applicants.

Beijing attempted to boost investors’ confidence by signing an “Investment Encouragement and Protection Agreement” with Pyongyang in March 2005 when Premier Park Bongju visited Beijing. The framework for economic and technological cooperation was made clearer through the signing of an “Agreement on Economic and Technological Cooperation” that October. Chinese officials have given financial incentives and guarantees to firms that invest in North Korea. China’s state-run banks have not only provided companies with investment capital but also have underwritten Chinese investment for joint ventures. Beijing granted preferential treatment to products processed in the North, allowing them better access to the Chinese market. Products that were processed in the Rajin area with Chinese materials and then imported to China, for instance, were labeled domestic trade and were thus exempted from customs inspection.

The deputy CEO of Beijing Sino-Korea Economic & Cultural Exchange Company, a Beijing company that helps Chinese companies invest in the North, has been quoted as saying that whether a company is able to invest in North Korea depended not on the company’s will but on whether the North would accept it or not. Foreign investors, he added, needed to meet the criterion of “political reliability.” In practice, concerns about political contamination limit North Korea’s economic cooperation with South Korea, whose government has eagerly pushed economic integration with the North. North Korea’s opening therefore means an opening toward China, and this in turn gives Chinese companies very rare advantages.

Labor costs in the DPRK are low [compared to China], running only 70–80 yuan (about US$10) per month.  Building a factory is very cheap, up to one million yuan (about $120,000).  Chinese entrepreneurs see that what North Korea needs is largely light industrial products. Because brand consciousness there is weak, these investors believe that many Chinese companies, even small- and medium-sized ones, can compete in the North Korean market.  The scope for making profits is bigger in North Korea than in China because manufacturers can charge more for similar products in the North. For example, the price of a cigarette lighter is three to five yuan ($0.36 to $0.60) in Pyongyang but only 0.5 yuan ($0.06) in Wenzhou, China.

Although big state-owned companies account for the majority of Chinese outward investments, they rarely invest in North Korea, leaving this to small- to medium-sized companies. In the past, most Chinese investors were Korean-Chinese merchants from two areas in China: Liaoning Province and the Yanbian Korean Autonomous Prefecture. They do not expect that they can make profits in the North Korean market right away; rather, they plan to be ready for when the North opens to the world, by moving into the market early.

Chinese investment projects in North Korea are not only small in number but also weak in scale. There are no detailed data available on their average size, but they likely are no exception to the fact that China’s outward investment is generally characterized by its small scale and low level of technology.

Although North Korea wants capital in such sectors as home appliances, construction materials, electronic communications products, and machine building, Chinese investment is heavily concentrated in the sectors where China’s needs lie, such as resource extraction, or where its companies can make a profit, such as service sectors. The official Chinese guideline for outbound investment, noted above, recommended investment only in such manufacturing sectors as textiles, clothing, and food products, leaving aside other sectors for which North Korea wants investment.

The North lacks basic frameworks needed for drawing in foreign investment. Policies, laws, and regulations about tax, for instance, are not in place. There is no well established market mechanism for running the economy. The government is still heavily involved in economic management; therefore, potential investors need to have personal networks to open doors, a point that worries potential Chinese investors.  North Korea lacks a sound political environment for enticing foreign investment. The country’s economic policies, especially those related to reform, shift continuously, raising questions about the official commitment to reform.

Pyongyang Department Store No. 1
Zeng Changbiao, chief executive officer (CEO) of the Zhongxu Group, in a much publicized deal in 2004, signed a contract to run Pyongyang’s Department Store No.1 for 10 years. He said his main motive for investing was to take over the North Korean market. He wants to be dominant in the North Korean retail business by securing and expanding market share. But it is not clear whether the contract was put into practice.  An article in a journal published by the National Development and Reform Commission, a ministry-level organization of the Chinese government, suggested that little had changed at the department store by the middle of 2005. South Korean officials also say that the store is still run by North Korea. Zhongxu Group’s Zeng received the lowest tax rate—5% income and 5% import—in the North Korean tax system.

This is one of three big department stores that were being run either by the Chinese alone or jointly.  Shenyang Municipal Association for Trade Promotion opened Daesong Market in Pyongyang, the first wholly foreign-owned company in a non-science sector.

China has shown an interest in joint resources development projects. The best known case is the project to develop the Musan iron mines. It is not easy to draw an exact picture of Chinese investment in the mines because many press reports suggest different stories. According to a Korean report, a Chinese company from Jilin Province planned to invest about $500 million in the mines. Ta Kung Pao, a Hong Kong newspaper, reported that three companies from Jilin—Tonghua Iron & Steel Group (Tonggang), Yanbian Tianchi Company, and Sinosteel Corporation (Zhonggang)—contracted rights to exploit the Musan iron mines for 50 years. According to the report, the Chinese companies were going to invest 7 billion yuan (about $865 million) and planned to produce 10 million tons of iron ore each year.  In the case of the Musan mines, 2 billion yuan (about $240 million) out of the 7 billion China committed to invest was allocated to building roads and railways from Musan to Tonghua in China. Sizable investment levels might help Jilin secure access to seaports in North Korea.

Similarly, the Chinese press has reported that the Musan iron mines development project was canceled by officials in North Korea, embarrassed by publicity over the deal because it highlighted the degree of foreign investment, a subject that Pyongyang would prefer to handle quietly.

Rason International Logistics Joint Company-Rason International secured the exclusive rights to run the No. 3 and No. 4 piers of Rajin port for 50 years. In order to secure the rights, China committed to investing 30 million euros ($36 million) to build an industrial park, tourism facilities, and a road from the trade district of Rason city to Rajin Port. North Korea in turn committed to providing China with 5 to 10 square kilometers of land to build the industrial park.