North Korean Economy Watch

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

In addition to the Haggard/Noland book release, there were a couple of other interesting North Korea events in Washington DC this week that I wanted to point out:

1. Korea Economic Institute: The Markets of Pyongyang
John Everard, UK Ambassador to the DPRK (2006-2008)

-Read his paper here (PDF).
-See his power point presentation here (PDF).
-See his full presentation in three parts: Part 1, Part 2, Part 3.

2. US-Korea Institute at SAIS: Silent Partners: Chinese Joint Ventures in North Korea
Drew Thompson, Director of China Studies and Starr Senior Fellow at The Nixon Center

-The event web page is here.
-Read an executive summary here
-Read the paper here.

Both papers are well worth reading.

Pictured above (L – R): Jang Song-thaek, Naguib Sawiris, and Kim Jong-il

According to Martyn Williams:

The CEO of Egypt’s Orascom Telecom has been given a rare honor during his current trip to Pyongyang: an audience with Kim Jong-il and dinner hosted by the reclusive leader for the businessman whose firm owns a majority of North Korea’s only 3G cellular network.

Naguib Sawiris arrived in the North Korean capital on Friday and was received on Sunday by Kim Jong-il, the Korea Central News Agency reported on Monday.

Kim Jong-il, “warmly welcomed his DPRK visit taking place at a time when Orascom′s investment is making successful progress in different fields of the DPRK, including telecommunications,” the report said.

Orascom holds a 75 percent stake in Cheo Technology, which operates North Korea’s only 3G cellular network.

The network, the remaining stake in which is held by the government, uses the Koryolink service name. It has seen fast growth in subscribers and currently claims more than 300,000 accounts in just the two years since its launch.

After starting first in Pyongyang, the network has been expanded to cover provincial capitals and smaller cities and a 3G signal is now within reach of 75 percent of the population, the company said in November last year.

The Orascom group has made several other investments in the country. In 2007 it invested in a cement factory and in late 2008, at around the same time it launched the 3G network, it opened a local bank. The company has also been tied to renewed construction work at Pyongyang’s pyramid-shaped Ryugyong Hotel. The iconic building was halted in 1992 and has remained vacant ever since.

According to the AFP:

North Korean leader Kim Jong-Il has met the head of an Egyptian company that provides a mobile phone service in the impoverished communist nation, state media reported Monday.

Naguib Sawiris, chairman and CEO of Orascom Telecom Holding, has been visiting the North since Friday. His company has provided a mobile phone service in the North jointly with a local firm since late 2008.

Kim “warmly welcomed his DPRK (North Korea) visit taking place at a time when Orascom’s investment is making successful progress in different fields of the DPRK, including telecommunications,” the North’s state news agency KCNA said.

Kim had “a cordial talk” with Sawiris and hosted a dinner for him, it added.

Orascom said last year that mobile phone subscriptions in North Korea had more than quadrupled in the space of a year — to 301,199 by the end of September 2010 from 69,261 a year earlier.

However, it said overall “mobile penetration” remains at one percent in the country, which has an estimated per-capita GDP of 1,700 dollars and a population of 24 million.

North Korea strictly controls access to outside information and fixes the tuning controls of radios and televisions to official stations.

It began a mobile phone service in November 2002 but shut it down without explanation 18 months later and began recalling handsets.

But in December 2008 the country introduced a 3G mobile phone network in a joint venture with the Egyptian firm.

The Egyptian group in 2007 sealed a 115 million dollar deal to invest in a North Korean cement plant. It is also reportedly involved in completing construction of the 105-storey Ryugyong Hotel in the capital.

Martyn has more at North Korea Tech.

Image from the Hankyoreh: The left graph shows the number of South Korean tenant companies operating at Kaesong Industrial Complex. 122 companies are operating normally, 77 companies are not currently operating, and 16 have halted operations. The right graph shows the total number of workers: above, the number of North Korean workers and below, the number of South Korean workers.

According to the Hankyoreh:

… [Companies in the Kaesong Zone]  complained that they have lost hundreds of millions of Won (hundreds of thousands of dollars) with the suspension of factory construction due to administration measures forbidding new investment. They also said that the situation is growing bleaker by the day, with veteran employees quitting as the numbers of resident personnel at the complex drops due to concerns about personal safety. Despite all of this, they suffer without a word of formal complaint out of fears that they might draw the anger of North Korean and South Korean authorities.

In its May 24 measures last year, the Lee administration declared a suspension to trade and exchanges with North Korea in response to the sinking of the Cheonan. At the complex, only existing facilities were allowed to operate, while the resident workforce was halved to 500 people and the introduction of additional equipment was prohibited. Sixteen companies that were in the process of building new factories suffered a direct hit from these measures. At present, a total of 122 small and medium companies run factories in the complex.

Company “A,” a garment company that invested 5 million Won ($4,493) in inter-Korean economic cooperation funding to build a sewing factory, but were forced to suspended construction with approximately 90 percent of the process complete.

“Only the exterior and interior remain,” said the president of the company. “We could not bring in factory equipment, so we just gave up.”

The Export-Import Bank of Korea (EXIM) only stood surety for 90 percent of the loan, so Company A faces the immediate burden of principal and interest repayments in the hundreds of millions of Won. It also has to pay 16 million Won per year in interest on the EXIM-guaranteed loan until compensation money comes from the government.

The company’s president said, “We borrowed the money because they said to do an inter-Korean economic cooperation project, and then they just cause a loss by suspending exchange. Is the administration playing interest games with South Koreans?”

To date, a total of 1.26 trillion Won ($1.1 billion) has been invested in the complex, the bulk of which is facility investment paid by tenant companies, amounting to 730 billion Won.

Company “B,” another garment company, originally had seven South Korean employees working with 330 North Korean workers. But following the order from Seoul to halve the number of resident employees, there are now just three South Korean employees left. Two employees left the company. “The employees who left were heads of household in their forties who had worked with us for over a decade,” the president sighed. “They had a difficult time getting up at 6 in the morning for the 70 to 80 kilometer commute, and the government actually ended up fanning anxieties with its talk about ‘protecting employee safety,’ so their family members dissuaded them from working at the complex.”

Hiring new employees is not an option. In some cases, interviews were held and start dates were set before the new recruits abandoned their plans after the Yeonpyeong Island shelling occurred two months ago. Company B, which has its head office in Seoul, is in a slightly better position. Employees at businesses in Daegu, Gwangju, and Busan, for whom commuting is impossible, are forced to stay at motels in Munsan, Gyeonggi Province.

“They emptied out a perfectly good dormitory in the Kaesong complex, and employees have been wasting time, money, and strength for months now,” said the president of Company “C.” “It stands to reason that the departure rate is increasing.”

The president of Company “D” stated emphatically that there is no physical risk at the complex. In fact, the president said, North Korean authorities have added more productive labor on site since the Cheonan sinking and the bombardment of Yeonpyeong Island. The 45,332 North Korean workers as of November 2010 represented an increase of a full 2,771 over the 42,561 working in 2009. The president of Company D stressed that the government must increase the number of resident personnel if the physical safety of South Korean employees is to be guarded.

“If it is impossible to guarantee physical safety, they should not be leaving a single person at the Kaesong complex,” the president said. “Does it make any sense to say that 500 people is okay, but 1,000 is not?”

Some buyers have also fallen away because of anxieties. In late 2010, garment company “E” lost a buyer that had previously been purchasing 70 percent of its production output. “They got worried when it became difficult to bring in raw materials due to the sanctions against North Korea, and finally they halted transactions, saying that they thought the government had washed its hands of the Kaesong complex,” the president of Company E said. “Even if we suspend operations because there is no work to do, we still have to pay the workers’ wages, so the deficit is increasing by the day.”

With the decreased South Korean presence, six commercial facilities within the complex have also closed down, including a supermarket, restaurant, and singing room at “Songak Plaza.”

“If you look at the Gaeseong Industrial Complex Support Act, which the National Assembly passed unanimously, the government is to provide support and guarantees so that we can conduct business freely, like companies do in any other region,” said the president of Company F. “We are on the brink of withering away because of this idea of restricting property rights and company activities for administrative expedience, and through a minister’s order rather than any law.”

While they have been driven to the brink, the company presidents are adamantly opposed to closure of the complex. The president of Company G explained, “At first, things were rocky because of cultural and ideological differences, but now the North Korean workers understand the companies. They have realized by themselves why we need to meet the delivery deadline, why we need to improve quality, why we need to make so much. The Kaesong complex is performing the role of reducing the costs of reunification by restoring homogeneity between North Korea and South Korea.”

The president of Company H said, “The possibility of war is also being checked by the presence of North Korean and South Korean workers in the complex.”

“For the sake of peace and shared prosperity, we need to develop [the complex] into a special economic zone of peace where North Korea and South Korea can communicate,” the president added.

According to the Choson Ilbo:

Six of nine commercial [leisure] facilities in the joint Korean Kaesong Industrial Complex have closed, it emerged on Tuesday.

According to the Unification Ministry, a supermarket, a beer hall, a karaoke and a billiard hall in the Songak Plaza, the industrial park hotel operated by Hyundai Asan, closed on Dec. 1, right after North Korea’s shelling of Yeonpyeong Island. Already in February a massage parlor closed, and in August a Japanese restaurant.

Only a duty-free shop and Korean and Chinese restaurants managed directly by Hyundai Asan stay open. A staffer at the industrial park said the reason is that the number of South Korean staffers in the industrial park, who were the main customers of the facilities, has dropped sharply.

There were some 1,200 to 1,500 South Koreans at the industrial park until the North’s sinking of the Navy corvette Cheonan in March and its shelling of Yeonpyeong in November, but the number dropped to about 500 recently.

According to Yonhap:

Production at an inter-Korean industrial park dropped 15 percent in November last year when the North bombarded a South Korean island, raising bilateral tensions to the highest level in years, the Unification Ministry said Sunday.

The fall, however, contrasted with an increase in the number of North Korean workers at the Kaesong industrial park, located just north of the heavily armed inter-Korean border, the ministry said on its Web site.

Over 45,000 North Koreans were working as of November for more than 120 South Korean firms at the complex, the ministry said, adding that they produced US$25.1 million worth of products that month, compared to $29.4 million in October.

The factory park is considered the last remaining symbol of reconciliation between the two Koreas that remain divided by a heavily armed border after the Korean War ended in a truce in 1953.

After North Korea shelled the western South Korean island of Yeonpyeong on Nov. 23, killing four people, Seoul restricted the number of South Korean workers allowed to stay overnight in Kaesong.

The measure, which remains in place, led business managers to complain of difficulties in production. South Korea maintains it will continue to support manufacturing activities at the Kaesong industrial park despite the North Korean provocation.

Since May when a multinational investigation led by Seoul found the North responsible for the sinking of a South Korean warship earlier that year, South Korea has suspended all cross-border trade with North Korea.

Read the full stories here:
Kaesong companies on the brink as sanctions continue
Hankyoreh
Jung Eun-joo
1/19/2011

Leisure Facilities at Kaesong Close Down
Choson Ilbo
1/19/2011

Output at inter-Korean factory park falls amid tension
Yonhap
1/23/2011

The Daedong Credit Bank (Based in the Potonggang Hotel in Pyongyang) has issued a press release.

I have made a PDF of it available here.

Here is their web page.

UPDATE  1 (2011-1-19): According to the Wall Street Journal:

A Chinese firm has signed a letter of intent to invest $2 billion in a North Korean industrial zone, representing one of the largest potential investments in Kim Jong Il’s authoritarian state and a challenge to U.S. policy in the region.

The agreement was signed with little fanfare in Pyongyang on Dec. 20—a day otherwise marked by pitched tension on the Korean peninsula following the North’s shelling of a South Korean island—according to documents viewed by the Wall Street Journal. Confirmation of the deal comes as Chinese President Hu Jintao visits Washington this week in a bid to forge closer security and economic ties with the U.S.

U.S. officials said the administration is aware of the possible Chinese investment, but noted that previous projects haven’t gone anywhere. “No investment project will enable North Korea to meet the needs of its people as long as its government continues its destabilizing behavior,” said a senior administration official.

The letter of intent involves China’s Shangdi Guanqun Investment Co. and North Korea’s Investment and Development Group. An assistant to the managing director of Shangdi Guanqun, who identified himself only by his surname, Han, said his company’s planned investment is focused on the Rason special economic zone, situated near North Korea’s border with Russia.

The zone was called Rajin-Sonbong when it was established in 1991, but failed to attract sufficient investment. It was revived, and re-named Rason, following a visit there in 2009 by Mr. Kim.

Mr. Han said the plan is to develop infrastructure, including docks, a power plant and roads over the next two to three years, followed by various industrial projects, including an oil refinery, over the next five to 10 years. He said the company was waiting for a response from the North Korean government before applying for approval from China’s Ministry of Commerce.

“It’s all pending at this stage, and it’s really up to the Korean side to make the decision,” Mr. Han said. He added that the $2 billion figure was what the North Korean side had hoped for, not necessarily what his company could deliver.

The company’s Web site says the company was “under the administration” of a state-owned enterprise, Shangdi Purchase-Estate Corporation. Mr. Han, however, said his company was “100 percent private.”

For the Obama administration, securing China’s cooperation in restraining North Korea’s military and nuclear-proliferation activities is a cornerstone of a warmer bilateral relationship. But the potential investment is a reminder of possible limits of Chinese cooperation.

The U.S. wants to step up sanctions to force Kim Jong Il to give up his nuclear-weapons arsenal and military activities. China, meanwhile, is increasingly promoting business projects and direct investment to influence the North, say Chinese and American analysts, arguing financial pressure hasn’t worked.

China is North Korea’s biggest trading partner and aid donor, but the scale of this deal raises concerns in Seoul that Beijing is running its own version of the “Sunshine” policy under which the South boosted investment in the North from 1998 to 2008.

This policy disconnect is expected to be one of the issues Chinese and U.S. officials discuss this week. “These types of deals pursued by China generally present a real challenge to the sanctions” being effective, said Victor Cha, a North Korea expert who helped oversee Asia policy in George W. Bush’s National Security Council. “The net effect is that it does make it more difficult for these sanctions to have the desired effect.”

Such deals have emerged in the past and have come to nothing, analysts said, and it is possible this one, too, could peter out. A number of similar North Korean economic zones have failed to live up to their billing because of poor infrastructure and corruption, and a lack of economic reform. News of the deal was first reported in the Korean-language press, including the Voice of America’s Korean service.

It is unclear how long the agreement has been in the works. But its Dec. 20 signing came on the day South Korea conducted a closely watched artillery test from Yeonpyeong Island near North Korea.

The test marked a high point in tensions after North Korea’s surprise late November shelling of Yeonpyeong, which killed four South Koreans. Pyongyang had threatened a swift military response should Seoul carry out an announced artillery test on Dec. 20. But the day’s drill came and went amid high security in the South, with the North saying in a statement it “did not feel any need to retaliate.”

Top administration officials have recently both praised and chided the Chinese over the North. On a trip to China last week, Defense Secretary Robert Gates commended the Chinese for their “constructive” role in reducing tensions on the peninsula after Pyongyang’s recent shelling of a South Korean island. Secretary of State Hillary Clinton in a Friday speech pressed China to be more aggressive in helping tamp down the North’s nuclear program.

The proposed investment is among the strongest evidence yet of China’s strategy of using direct investment rather political pressure to push for change in North Korea. Chinese experts say that after North Korea’s first nuclear test in 2006, China tried to make improved bilateral relations dependent on Pyongyang dismantling its nuclear program. But after a second test in 2009, China changed tack.

Beijing now believes, according to Chinese experts, that the North Korean regime won’t respond to political pressure and could collapse completely if China cuts off aid and investment, triggering a flood of refugees into northeastern China, and bringing U.S. troops right up to the Chinese border.

The investment strategy was cemented when China’s Premier Wen Jiabao visited North Korea in October 2009 and signed a slew of economic and trade agreements. One of those agreements was for China to fund construction of a $250 million bridge across the Yalu River that separates the two countries.

Construction of the bridge, which would link China with another North Korean special economic zone, had been slated to start in August. Local officials said in November it appeared to have been put on hold indefinitely. Now they say a ground-breaking ceremony was held Dec. 31.

U.S. officials are particularly concerned about how China’s financial links to North Korea may be facilitating Pyongyang’s weapons programs. In November, Pyongyang showed a visiting American scientist 2,000 centrifuges stationed at a cover site, drastically raising fears about the North’s ability to expand its nuclear-weapons arsenal.

“China’s increased economic support undercuts the rest of the region’s efforts to convince Pyongyang that there will be consequences for further belligerence, nuclear weapons development or transfer of nuclear capabilities,” said Michael Green, who also served as a senior official on Asia during the Bush administration.

Read the full story here:
Chinese Firm to Invest in North Korea
Wall Street Journal
Jay Soloman and Jeremy Page
2011-1-19

ORIGINAL POST (2011-1-7): According to the Joong Ang Ilbo:

A Chinese state-run company recently agreed to invest $2 billion in North Korea’s Rason free trade zone, the JoongAng Ilbo learned yesterday from documents related to the deal.

Shangdi Guanqun Investment Co., Ltd. signed a 10-point memorandum of understanding with Pyongyang’s Investment and Development Group on Dec. 20 in Beijing, the documents showed.

The signing ceremony was attended by Mi Chang, president of Shangdi Guanqun Investment, and Kim Chol-jin, president of the Investment and Development Group.

The goal of the investment, stated in the documents, is to build Rason, a northeastern North Korean city on the East Sea that borders both China and Russia, into the “biggest industrial zone in Northeast Asia” in around 10 years.

The project calls for coal-fired power plants, roads, piers and oil refineries in the North Hamgyong Province city, the documents said.

According to the documents, the deal is “a strategic joint project based on trust between high-level figures” in China and North Korea, which suggests it may have been negotiated by North Korean leader Kim Jong-il during two visits to China last year, on which he met Chinese President Hu Jintao.

The North’s economy has suffered under international sanctions on trade and financial services overseas, imposed after its nuclear weapon tests, and is desperately seeking foreign investment.

China is investing in Rason as an export base to serve markets in Japan, southern China and Southeast Asia.

Rason is a merger of two towns, Rajin and Sonbong, and was designated the first free trade zone in the North in 1991. It was promoted to a “special city,” which means it has fewer restrictions on businesses.

“We have a deep interest in North Korea’s ample natural resources,” an official of Shangdi Guanqun Investment Co., Ltd. told the JoongAng Ilbo. “To facilitate the export of natural resources [from the region], we will invest $300 million first and construct a coal-fire power plant at the coal mine and build a railway, roads, and harbors and piers [near it].”

The Chinese firm’s official said the company opened an office in Pyongyang at the end of last month.

Shangdi Guanqun Investment, established in 1995 by the Chinese government, is a trading firm specializing in oil processing, natural resources and international financial services. It is one of the key companies in China’s 12th five-year economic development plan that starts this year.

North Korea’s Investment and Development Group is in charge of developing the country’s four free trade zones. The other economic special zones are in Kaesong, Mount Kumgang and Sinuiju.

The Shangdi Guanqun Investment official said the company will build an oil refinery in Rason, where it plans to refine crude imported from the Middle East and Russia and sell the output to China or other countries.

I believe this Chinese story also relates to the same project.

Read the full story here:
China backs North’s Rason project
Joong Ang Daily
Ko Soo-suk
2011-1-7

According to Yonhap:

Despite persisting political woes, a new South Korean company has begun operating in North Korea’s border industrial complex that combines superior South Korean capital and know-how with the North’s cheap local labor, a government official said Thursday.

The company, known as DSE, completed building its factory in Kaesong in early May and is therefore exempt from the investment ban on North Korea that Seoul imposed later that month over the sinking of a South Korean warship, the Unification Ministry official said.

…

The ministry official, who spoke on customary condition of anonymity, said DSE began operating on Jan. 3 and is employing 160 North Korean workers, part of the 44,000 workforce in the Kaesong complex, to produce lighting apparatuses and other metallic products.

The number of South Korean companies operating in Kaesong now stands at 122, the official added.

…

South Korea has since sharply cut down on the number of its workers allowed to stay in Kaesong. The North, in an apparent act of desperation to revive its economy, has since called for lowering tension and holding cross-border dialogue. South Korean officials are demanding that the North first show “sincerity,” indicating Pyongyang must apologize for the series of provocations blamed on it.

Read the full story here:
New S. Korean company begins operating in N. Korean factory park
Yonhap
Sam Kim
1/6/2011

Item number one: the DPRK’s domestically produced film camera, Hakmujong-1 (학무정-1):

This picture comes via the Russian blog “Show and Tell Pyongyang”. You can read about this camera in the original Russian here.  You can read about it in English (via Google Translate) here. This is the same blog that informed us about the DPRK’s PDA device and the DPRK’s Linux OS, Red Star.  He also has some fabulous pictures of the Kim Jong-suk Pyongyang Silk Mill here.

Item number two: DPRK’s domestic “Coke”:

This photo comes from the collection of Eric Lafforgue.  If you have not already seen his photos, please do yourself a favor and click over.

The soda is “Crabonated” which is a pretty funny typo.  Also worth noting are the lengths they have gone through to copy the Coca-Cola brand–as if they are trying to win back market-share from the foreign firm.  The colors, red, black, silver and white are the same.  The familiar cursive English “C” at the beginning of the word is a close copy.  They even tried to replicate the Coke “wave” by adding a literal wave in a similar curve along the bottom of the advert.

Item number three: DPRK caviar (Okryu Restaurant)

“Thanks to our leader Kim Jong-il we have managed to breed sturgeons.  People from Pyongyang and other provinces can come here to taste caviar and turtle meat.”

See the full video here. Here is a satellite image of the restaurant.

Item number four: Women’s fashion

Uriminzokkiri has posted a clip on DPRK women’s fashion to their Youtube account.  You can see it here.  I have blogged about women’s fashion before here and here.

Item number five: New Koryolink advert (Koryolink is the DPRK’s new 3-G mobile phone service founded by Orascom)

The video comes from this NK web page.  For South Koreans I posted it to my Youtube account.  You can see it here.

Item number six: DPRK verison of The Diary of Anne Frank

Michael Rank has scanned the introduction and uploaded it here.

Item number seven: Happy new year!

The Choson Ilbo begins this story with “Rumor has it”….

Rumor has it that China is getting directly involved in the development of North Korea’s Rajin-Sonbong Port, once the center of the UN Development Programme’s Duman (or Tumen) River project in 1991. A source in Beijing said Wednesday, “As far as I’m aware, North Korea and China’s Commerce Ministry recently signed a memorandum of understanding outlining Beijing’s investment of US$3.5 billion over five years beginning next year” in the special economic zone there. The source said China is investing in roads, ports and gas facilities in the region.

The Rajin-Sonbong area, at the mouth of the Duman River, is a strategic point of economic cooperation between the two countries, but neither bank is Chinese territory. One side is in North Korea and the other in Russia, so to get to the East Sea China had to borrow a port from either side. China did nothing about the UNDP initiative in the 1990s, but since the mid-2000s, it has set its eyes on the area.

North Korea for some reason rented out the best equipped dock there to Russia in 2008 but since last year it has been seeking investment from China to overcome dried-up aid from South Korea amid international sanctions. North Korean leader Kim Jong-il urged Chinese President Hu Jintao when he visited China in May this year to invest in the region.

But the rumor of direct investment from the Chinese government has not been confirmed. One diplomatic source in Beijing said, “I’ve heard nothing about the Chinese Commerce Ministry’s direct involvement in negotiations. It’s just one of many rumors since North Korea became active in developing the Rajin-Sonbong area.”

UPDATE from the Choson Ilbo:

Chinese officials with close ties with North Korea say the North has used to demand hard cash for business deals but is now taking a more flexible approach. The Global Times, a sister publication of the People’s Daily, published a series of reports Saturday about the Rajin-Sonbong special economic zone of North Korea.

It said street lights and neon signs powered by windmills have appeared in the region, which had earlier been pitch dark at night, while the previously ubiquitous soldiers have vanished.

North Korea allowed 4,000 Chinese residents in the area to rent commercial property and agreed to designate an area in the Rajin-Sonbong special economic zone to be jointly administered by the two countries.

North Korea had offered China to develop one or two islands in the estuary of the Apnok River on a 50-year lease, but when China demurred it apparently offered a 100-year lease and even allowed construction of golf courses and other recreational facilities.

…

Many private Chinese companies are reticent about investing in North Korea. Not only is there a lack of business laws to protect their investment, there are also too many political uncertainties. As a result, the Chinese government is not playing a very active role. In the case of the bridge across the Apnok River, North Korea apparently wanted Chinese state-run companies to take part in construction, but Beijing declined.

One source in Beijing said some Chinese companies are showing great interest in developing the Rajin-Sonbong area, but most are biding their time. “Chinese businesses still don’t seem to trust the sincerity of North Korea’s desire to open up its economy,” the source added.

Additional Information:
1. The Chinese and Russians currently lease docks at Rajin. You can see a satellite image of them here.

2. Here is more information on China’s 10-year lease of Rajin.

3. Here is information on the Yalu Islands China is reportedly leasing.

4. The Russians are also building Russian gauge railway line from the Russian border to the port in Rajin.

5. Here are all previous Rajin (Rason)posts

Read the full stories here:
Beijing ‘Pouring Money into N.Korea’s Special Economic Zone’
Choson Ilbo
12/30/2010

N.Korea’s Cross-Border Business with China Picking Up
Choson Ilbo
12/30/2010

On November 18, 2010, the US Treasury Department issued the following press release:

Treasury Designates Key Nodes of the Illicit Financing Network of North Korea’s Office 39

WASHINGTON – The U.S. Department of the Treasury today designated Korea Daesong Bank and Korea Daesong General Trading Corporation pursuant to Executive Order (E.O.) 13551 for being owned or controlled by Office 39 of the Korean Workers’ Party.  Office 39 is a secretive branch of the government of the Democratic People’s Republic of Korea (North Korea) that provides critical support to North Korean leadership in part through engaging in illicit economic activities and managing slush funds and generating revenues for the leadership. Office 39 was named in the Annex to E.O. 13551, issued by President Obama on August 30, 2010, in response to the U.S. government’s longstanding concerns regarding North Korea’s involvement in a range of illicit activities, many of which are conducted through government agencies and associated front companies. Korea Daesong Bank is involved in facilitating North Korea’s illicit financing projects, and Korea Daesong General Trading Corporation is used to facilitate foreign transactions on behalf of Office 39.

“Korea Daesong Bank and Korea Daesong General Trading Corporation are key components of Office 39′s financial network supporting North Korea’s illicit and dangerous activities,” said Under Secretary for Terrorism and Financial Intelligence Stuart Levey.  “Treasury will continue to use its authorities to target and disrupt the financial networks of entities involved in North Korean proliferation and other illicit activities.”

E.O. 13551 targets for sanctions individuals and entities facilitating North Korean trafficking in arms and related materiel; procurement of luxury goods; and engagement in certain illicit economic activities, such as money laundering, the counterfeiting of goods and currency, bulk cash smuggling and narcotics trafficking. As a result of today’s action, any assets of the designated entities that are within U.S. jurisdiction are frozen and U.S. persons are prohibited from conducting financial or commercial transactions with these entities.

You can learn more about the Treasury’s press release here.

Here is the US Treasury Department’s new North Korea resource page.

In response, the Daedong Credit Bank issued the following press release:

FOR IMMEDIATE RELEASE:

US Treasury Press Release 18th November 2010

London UK/Pyongyang DPRK, December 20th 2010

Daedong Credit Bank (DCB) has noted the press release of 18th November 2010 by the US Treasury and makes the following comments:

1.    Korea Daesong Bank (KDB) is a 30% shareholder in DCB.  DCB is not, and never has been, aware of any activity by KDB which is in breach of any of its obligations, domestic or international.  In particular, DCB is not aware of KDB having acted in breach of any sanctions.  DCB is not aware of any cause of concern about the conduct of KDB.

2.    KDB has no executive control of DCB.

3.    DCB is majority owned by overseas investors and is foreign-managed.

4.    DCB does not act and has never acted in breach of any of its domestic or international obligations.  DCB acts in a manner consistent with domestic and international law.

5.    DCB is apolitical and promotes foreign investment in the DPRK as a positive development.

The Daedong Credit Bank looks forward to playing a significant part in facilitating normal commercial relationships between the DPRK and the international business community.

About Daedong Credit Bank

Daedong Credit Bank is a joint venture retail bank based in Pyongyang. It was established in 1995 as “Peregrine Daesong Development Bank”. The Bank underwent a change of name and foreign ownership in 2000.

Daedong Credit Bank is the first, by fifteen years, foreign majority held bank in the DPRK. DCB considers itself a flagship successful joint venture in the DPRK, and a key part of the infrastructure needed to assist the foreign-invested ventures, which drive the country’s economic reforms.

The bank’s principal function is to offer normal “high street” banking facilities in hard currency to; foreign companies, joint ventures, international relief agencies and individuals doing legitimate business in the DPRK.

Daedong Credit Bank was the first bank in the DPRK to introduce, and vigorously implement, a comprehensive set of anti-money laundering procedures. DCB’s anti-money laundering procedure manual was introduced seven years ago, and subsequently updated based on anti-money laundering guidelines provided by the Asian Development Bank. The manual has been sent to, and accepted by, DCB’s international correspondent banks.

Daedong Credit Bank also maintains strict procedures for the detection and rejection of counterfeit bank notes; it uses regularly updated note checking machines, and has personnel with over 10 years’ of experience of handling notes. DCB have encountered and impounded the so-called ‘superdollar’ notes, proving that these notes (despite media misconceptions) are not undetectable.

The wealth of experience garnered over Daedong Credit Bank’s 15 years of successful operation is unrivaled.

Daedong Credit Bank has a significantly strong position in relation to the future economic development of the DPRK and, being the oldest established foreign invested commercial bank in the DPRK, it is the intention of the bank to capitalise on these advantages.

CONTACT INFORMATION:

Daedong Credit Bank office address in Pyongyang is:

Daedong Credit Bank
401, Potonggang Hotel
Ansan-dong
Pyongchon District
Pyongyang
Democratic People’s Republic of Korea

Phone Switchboard  +850 2 381 2228/9    ext 401
Direct line     +850 2 381 4866
Mobile          +850 193 801 8400 *
*Note, the mobile number may not be obtainable from certain countries (eg UK and Hong Kong).
Corporate Website www.daedongcreditbank.com