North Korean Economy Watch

Francoise Nicolas has written a data-driven survey on the DPRK’s changing trade and investment relationships.  The paper can be downloaded here (PDF).  This paper has also been added to my DPRK Economic Statistics page.  Here is the paper’s conclusion:

This brief analysis of the current external economic relations of the DPRK leads to a number of conclusions.  First, the North Korean economy maintains very limited exposure to the outside world and, as a result, to external influence.  In terms of volume North Korea’s trade is miniscule, even in relation with the size of its economy.  This is also the case for foreign direct investment inflows.

Secondly, although North Korea is less isolated than often thought, its trade and investment flows are very heavily polarized both geographically and sectorally, limiting de facto their potential impact.  In contrast to what was the case during the Soviet era, North Korea’s main economic partners are not ideological partners but neighboring economies, namely China and South Korea.  They are major partners in trade as well as in FDI.  Russia still plays a non negligible role but is in no way comparable to what was the case before the demise of the Soviet bloc.

Thirdly, North Korea’s external economic relations are very much dictated by political considerations.  Politics accounts both for the choice of partners and for the nature of the economic relations.

Fourthly, and more importantly, the very distinct nature of the DPRK’s connection with the rest of the world, and primarily with its two major economic partners, sets it apart from other transition economies and in particular from China, but also from Vietnam.  In the case of North Korea, economic openness, although announced time and again as an official objective, cannot be seen as an instrument for enhancing competitiveness or as part of a development strategy.  The recent, renewed signs of reform in the direction of increased openness should thus be interpreted with utmost caution.

Fifthly, the structure of the country’s external trade is indicative of an economy in survival mode.  The substantial aid component in the inter-Korean trade and FDI relationship undoubtedly further substantiates such a claim.  Surprisingly, relations between North Korea and China are more often based on a market-economy logic, although this only holds true for trade flows and not FDI flows.  The Probability of change through trade appears still very limited.

Lastly, the role the European Union may play in the region remains very much an open question but the margin of maneuver is limited.  Given the state of play described earlier, it would be extremely naive to believe that a European engagement strategy vis-à-vis the DPRK could contribute to economic change.  In addition the country’s lack of attractiveness for potential investors is a further obstacle.  However, the persistent uncertainty and the lack of visibility over the political and economic evolution of the DPRK should not deter European investment in the region and, far to the contrary, should provide a strong incentive to closely monitor the economic moves made in Pyongyang.

Institute for Far Eastern Studies (IFES)
NK Brief No. 10-04-15-1
4/15/2010

As North Korean tours to Keumgang Mountain and other trips aimed at South Korean visitors are all currently frozen, trips into the DPRK by Chinese tourists are beginning to grow. On April 10, a North Korean official revealed that Chinese group tours would be warmly welcomed by Pyongyang, and on April 12, a group of approximately 400 Chinese visitors and officials arrived in the North. Pyongyang and Beijing reached an agreement on tours last February. Cho Seong-kyu, director of the Choson International Tours, stated that his office, responsible for tours for foreigners to North Korea, is preparing a tour course to Pyongyang, Kaesong, Myohyang Mountain and Nampo for Chinese visitors. He explained that since 1988, 20,000 Chinese tourists annually visit Pyongyang, and that many more tour courses were being prepared.

For the past four years, the Chinese government has banned group tours to the DPRK, but that restriction has been completely lifted. Now, tourist trains are being operated and the range of tours offered is growing. Group tours to North Korea were banned in 2006 after Chinese officials were found to have been inappropriately gambling during their trips, but tours will resume on May 12. With 800 Chinese tourists set to board a DPRK-bound train leaving from Hangzhou, it appears that many Chinese are interested in tours of North Korea. On March 18, China’s National Development and Reform Commission and its Bureau of Travel and Tourism released a “Northeast China Tourism Industry Development Plan,” in which it revealed the plan to permit tours to North Korea. Following last year’s measures to improve industry in the northeast provinces, Beijing is now aiming specifically to bolster the tourism industry in the region by arranging overland tours to Russia and North Korea, as well as developing other new domestic and international tour destinations.

In addition to the existing tour to Sonyang-Dandong-Pyongyang, new routes from Baishan (Jilin Province)-Changbai-Hyesan and Yanji-Hunchun-Fangchuan-Rajin/Chungjin have been included. Until now, tour courses to North Korea were limited to Dandong-Sinuiju-Pyongyang, Sanhezhen-Chungjin/Mount Chilbo, and Mount Baekdu-Samjiyon-Pyongyang. As Rajin Port is opened, the Bureau of Travel and Tourism also plans overland trips to the city, in conjunction with a ferry shuttling Chinese tourists to Vladivostok, South Korea, and Japan. In addition, the Yanbian Autonomous Prefecture is promoting the development of a longer tour, from Hunchun through Rajin, on to Pyongyang and even down to Panmunjom.

North Korea has announced the seizure of South Korean property at the Keumgang Mountain tourist resort, and now Chinese travel agents are signing contracts to sell tours to the resort developed mainly by Hyundai-Asan and South Korean government investment. North Korean authorities have offered six-month contracts allowing the Chinese tour operators to book Keumgang tours, guaranteeing them access to hotels and other facilities in the resort area. Over 1,000 Chinese tourists have already booked tours to Keumgang, to begin after April 20.

North Korea froze South Korean government assets in the resort, including the Visitors’ Center, a spa, and a duty-free store, and deported South Korean employees in a first stage of measures to pressure the South into restarting cross-border tours. On April 13, the North stepped up the measures, freezing Hyundai-Asan and other South Korean private-sector assets, ordering the deportation of employees related to these businesses as well. Korean Central Broadcasting reported on April 8, “Because of south Korean authorities, Hyundai’s tourism agreement and contract have become invalid,” announcing that domestic and international tours would begin again with a new tour operator.

And according to the Choson Ilbo:

The first tour groups from across China started off on their way to North Korea on Monday. China has organized group tours of North Korea since 1988, but they were available only to provinces bordering the North such as Liaoning and Jilin.

But on Monday, a group of 395 Chinese tourists left for North Korea by air or train from Beijing, Shenyang and Dandong, the China National Tourism Administration said. They will gather in Pyongyang before starting an eight-day tour of tourist spots in the capital like the Kim Il-sung statue and Mansudae, as well as Kaesong, Panmunjeom, Mt. Myohyang and Nampo.

Mt. Kumgang is not included in their itinerary, despite threats by the North to find another partner for visits to the scenic resorts. South Korea declined to resume tours there in the wake of the fatal shooting of a tourist in 2008 unless the safety of travelers is guaranteed.

However, some Chinese travel agents are offering tour programs that include Mt. Kumgang.

According to GPI:

In the current financial and economic situation, companies face many challenges. They must cut costs, develop new products and find new markets. In these fields, North-Korea might be an interesting option. Since a few years, it is opening its doors to foreign enterprises. The labor costs are the lowest of Asia, and its skilled labor is of a high quality. It established free trade zones to attract foreign investors and there are several sectors, including textile industry, agro business, shipbuilding, logistics, mining and Information Technology that can be considered for trade and investment.
  
European Business Mission to Pyongyang: May 2010
In order to explore these business opportunities, we will organize again a business mission to North-Korea (15-22 May). We will also visit the annual Pyongyang Spring International Trade Fair (see photo). This fair can be used by European companies to come in contact with potential buyers and suppliers in North-Korea. Information abouth both events has been attached. In case this date is not convenient for you, individual business trips are possible as well. Later this year, another trade mission will visit Pyongyang from 11-18 September. 
       
With best regards, Paul Tjia (director)  
GPI Consultancy, P.O. Box 26151, 3002 ED Rotterdam, The Netherlands
E-mail: paul@gpic.nl
Tel: +31-10-4254172 
Fax: +31-10-4254317
Website: www.gpic.nl

Here is the program flyer (PDF) 

According to Yonhap:

Chinese travel agencies are selling tour programs to North Korea’s Mount Kumgang amid Pyongyang’s announcement that it will find a new partner in retaliation for Seoul’s reluctance to resume cross-border tours, tourism sources said Sunday.

Two Chinese agencies in the city of Tongcheng and the southern province of Guangdong are taking reservations for tour programs that include the scenic mountain and other sights, including Pyongyang, the ancient city of Kaesong and the border with South Korea.

However, it was unclear if the programs are related to the North Korea’s decision last week to dump South Korea’s Hyundai Asan for an unidentified new partner for the mountain tours. Sources in Beijing said that the link appears to be weak, as the Chinese programs had been under preparation before Pyongyang’s announcement last week.

North Korea is angry over South Korea’s reluctance to resume tours to the mountain, which had been a key source of foreign currency for the impoverished nation since 1998. They were suspended in 2008 following the shooting death of a South Korean tourist near the resort.

South Korea demands the North agree to a joint on-site investigation into the death and safety measures for tourists.

Some South Korean media reported last week that the North formed a partnership with a Chinese tour organizer to run tours to the mountain, but Seoul’s Unification Ministry said the reported partnership has not been confirmed.

North Korea’s already serious economic troubles have deepened in the wake of U.N. sanctions for its nuclear test last year, while the regime’s failed currency reform has fueled inflation, food shortages and even rare social unrest.

Meanwhile, about 400 Chinese people are scheduled to embark on a tour of key sights in North Korea. In February, Beijing formally granted permission to its citizens to go deep into the communist neighbor, lifting its previous policy of limiting tourism to the border area.

Read the full story here:
Chinese agencies sell tour programs to N. Korea’s Mount Kumgang
Yonhap
4/11/2010

Institute for Far Eastern Studies (IFES)
NK Brief No. 10-04-12-1
4/12/2010

As inflation and food worries continue to grow in North Korea, social unrest is palpable. According to the group ‘Good Friends’, North Korean officials slashed prices on all goods to 1/100th of their going rate in an effort to ease the public. Considering the fact that North Korea revalued its currency by the same ratio on November 30, it appears that Pyongyang is effectively acknowledging the reform’s failure.

The Good Friends newsletter reports that the Korean Workers’ Party cabinet had handed down an order to reduce the price of all goods by a factor of 100:1, while the people of North Korea were told during local meetings that currency was revalued at 100 to 1, but not in order to reduce the sale of goods by 100 to 1, as well.

It also stated that at the first cabinet meeting in March, there was discussion on the fact that it was rumored that prices had climbed several times higher than official prices, and would continue to rise. It was decided that, at first, people thought of the currency reform as a 100-fold increase in prices, and that the same was true of management in state-run organizations. Later, at the second meeting of the cabinet, it was decided that a ‘100 to 1 Price Plan’ would be distributed to each city and town.

Now, People’s Committees and security forces in each city and town are enforcing the ‘100 to 1 Price Plan’ while the central Party’s 100:1 commerce committee has distributed a class syllabus in support of the price modifications, which was lectured on throughout the country from March 16-18. This indicates that the government is again controlling all prices throughout the country.

With no goods or aid flowing in from outside, it is likely that the price and exchange rates will continue to climb. On December 9, rice sold for 23 won, but the value of the new currency falls daily, and starvation is striking people in several areas throughout the country. Anger over government policies and general feelings angst are not hard to find in families and labor groups. The government is trying to control the prices of daily necessities, but if it is unable to do so, this situation cannot avoid becoming explosive. The central government has also sent officials out to different areas of the country to enforce a rice price of 25 won/Kg. This is the highest rice sold for in markets prior to the currency reform. Enforcing the same price throughout the country is an attempt to stabilize markets, and is a temporary measure to try to keep residents’ tempers from flaring.

The November currency reform was the first currency revaluation in 17 years, and was part of a set of strong measures to restrict markets, along with market closures and bans on foreign currency. However, since last February, the inflation sparked by the currency revaluation has grown severe and internal unrest has increased, leading authorities to reopen markets and set price caps. Now, the price of rice in North Korean markets appears to have stabilized at 400 won per kilogram, but due to the unrest over the last 100 days, many middle-class residents have fallen into poverty.

UPDATE: According to Yonhap:

North Korea has told four employees at a South Korean-run mountain resort to leave the communist nation within 24 hours as part of measures to freeze Seoul-held assets there, sources here said Tuesday.

The North has also sealed the key holes of entrances to five facilities and has pasted keep-out stickers, they said. The facilities were built and run by the South Korean government and its state tourism agency.

The workers, ethnic Koreans from China, had been overseeing the maintenance of a family reunion center at Mount Kumgang. The other facilities subject to Tuesday’s asset freeze included a duty free shop run by Seoul’s Korea Tourism Organization.

The North’s measures were seen as an attempt to increase pressure on Seoul to resume a joint tourism program to the mountain resort that had been an important source of foreign currency for the impoverished nation.

Officials in Seoul earlier said the freezing of assets will have little actual impact as the facilities have hardly been in use since the cross-border tours to Mount Kumgang were suspended in 2008.

Still, the measure symbolizes Pyongyang’s anger over Seoul’s refusal to resume the lucrative project that had earned the regime millions of dollars a year. It also suggests that stronger steps, such as asset confiscations, could come if the South keeps refusing.

On Tuesday morning, North Korean officials began carrying out the measure, a source said without giving any specifics.

“We will respond after we see what the freezing measure will involve,” an official in Seoul said.

The tours, which began in 1998, had been a prominent symbol of reconciliation between the rival states that are still technically at war after the 1950-53 Korean War ended in a ceasefire, not a peace treaty. Nearly two million South Koreans had visited the scenic mountain.

South Korea suspended the program in 2008 after one of its citizens was shot dead by a North Korean guard after entering a restricted area near the resort. Seoul has demanded a state-to-state guarantee of tourist safety as well as a joint on-site probe into the death before the tours can resume.

North Korea says it did everything to assure tourist safety in a deal that leader Kim Jong-il struck with the head of the tour’s main South Korean organizer, Hyundai Asan, last year.

South Korea has protested the North’s decision to freeze the five facilities which include a family reunion center, a fire station and a duty free shop.

Despite threats from the North, the government of South Korean President Lee Myung-bak has shown no signs of backing down. It also rejected the North’s demand that Seoul officials come to the resort to attend the asset freeze, and warned it would hold the North responsible if it causes any damage to resort facilities.

Since taking office in early 2008, Lee halted unconditional aid to the North, linking its resumption to progress North Korea makes in ending its nuclear weapons programs.

Amid the lack of aid from the South, North Korea’s economic troubles have deepened in the wake of fresh U.N. sanctions imposed after Pyongyang’s nuclear test last year, and the regime’s failed currency reform that worsened inflation and food shortages.

Here are some press releases from the Ministry of Unification: Statement 1, Statement 2.

ORIGINAL POST: According to the Associated Press:

North Korea informed South Korea that it will begin quitting a joint tourism project in the communist country this week, officials said Sunday, in another setback to relations between the countries.

North Korea said Thursday that it would freeze some South Korean assets at scenic Diamond Mountain, expel South Koreans working at the site and restart the stalled project with a new partner.

A day later, the North told the South that it will carry out the plan Tuesday, starting with the freezing of the South Korean government-owned assets that include a reunion center for families separated by the Korean War, according to Seoul’s Unification Ministry.

It was not clear when the North would expel South Korean personnel, according to Hyundai Asan, the resort’s South Korean tour operator that relayed the North’s plan to the South Korean government.

The North said it would freeze assets at the site while South Korean officials were in attendance, but the South has no intention of sending officials to comply with the North’s request, ministry spokeswoman Lee Jong-joo said.

South Korea halted tours to the mountain resort on North Korea’s east coast in July 2008 after a South Korean tourist was fatally shot after allegedly entering a restricted military area next to the resort.

The North had recently expressed its willingness to restart the tours, a legitimate source of hard currency for the impoverished regime. But South Korea said the North must first accept a joint investigation into the shooting death.

North Korea’s decision to quit the tour project “is the inevitable consequence entailed by the moves of the South Korean authorities to escalate the confrontation with fellow countrymen,” the North’s government-run Minju Joson newspaper said in a commentary carried by the official Korean Central News Agency on Sunday.

Relations between the two Koreas have worsened since a conservative Seoul government took office in early 2008 with a pledge to get tough with the North.

But North Korea has tried to reach out to Washington and Seoul since last summer in an about-face that analysts and officials say shows the North feels the pain of U.N. sanctions adopted to punish it for its nuclear test in May.

The DPRK wants South Korean officials present for the occasion, but the South has refused.  According to the the AFP:

Seoul on Sunday rejected Pyongyang’s demand that South Korean officials come to a North Korean resort where the communist regime is about to freeze South Korean assets, worsening bilateral ties.

North Korea wants South Korean officials present on Tuesday when it freezes the assets, Seoul’s unification ministry spokesman Chun Hae-Sung said.

However Seoul will not comply with the summons, he said.

The North last week threatened to freeze assets at the Mount Kumgang resort after pressing Seoul in vain to lift its ban on tours to North Korea, which once earned the impoverished state tens of millions of dollars a year.

The North also declared its cross-border tour business deal with South Korean firm Hyundai Asan void, threatening to find a new partner to replace it and to expel some South Korean personnel.

Seoul suspended the cross-border tours in July 2008 after North Korean soldiers shot dead a South Korean housewife who strayed into a military zone.

South Korea demands firm agreements on the safety of visitors, a joint investigation into the shooting and the North’s apology for the killing.

The North says it has already given safety guarantees.

The latest tit-for-tat reflects the deterioration in relations since the South’s conservative government took office in 2008 and took a tougher line with Pyongyang, linking economic cooperation with the North to progress on its nuclear disarmament.

The North’s official Minju Joson newspaper said Sunday the collapsing tour deal “is the inevitable consequence entailed by the moves of the South Korean authorities to escalate the confrontation with fellow countrymen.”

It accused Seoul of overturning previous agreements on resuming the tours, which began in 1998.

Nearly two million South Koreans had travelled to the North in the past decade, earning it some 487 million dollars.

North Korea is also suffering economically from tougher sanctions imposed by the UN Security Council since Pyongyang’s second nuclear test in 2009.

It says it will freeze five Seoul-owned assets — a family reunion centre, a fire station, a culture centre, a spa and a duty free shop — in the Mount Kumgang resort, but did not specify how, Seoul officials said Sunday.

The South has urged the North to reverse its decision, saying the communist state is breaching business contracts and international norms.

Pyongyang also threatens to re-examine an industrial park with the South at Kaesong just north of the border.

Some 42,000 North Koreans work at 110 South Korean-funded plants at Kaesong, which like Kumgang is a valuable source of scarce hard currency for the North.

Here is a link to previous Kumgang stories.

Read the full story here:
NKorea to start quitting joint tour this week
Associated Press
Kim Hyung-Jin
4/11/2010

Institute for Far Eastern Studies
NK Brief No. 10-04-05-1
4/5/2010

It has recently been verified that following the currency reforms at the end of last year, North Korea passed 11 laws revising and reforming the system of government control over the economy. Among these measures is a law banning the black market sales of grain.

The North’s food administration law, revised last November 3, clearly bans the black market trade and smuggling of grains, and sets the punishment for such activities as the confiscation of the grains in question. In addition, an order was passed down stating that when food supplies are rationed to a labor management office, they are to be distributed in accordance with a worker’s efforts, position, and productivity. On the same day, a new agricultural law was passed that stated if organizations and groups that were granted land for private plots failed to meet state-set harvest quotas, the plots could be confiscated.

In November and December of last year, North Korea also enacted the Real Estate Management Law, Goods Consumption Standard Law, Construction Materials Import Law, Import/Export Country of Origin Law, Waterworks Law, Labor Quantity Law, Farm Law, Sewer System Law, and the Mariner Law. Among these, the Labor Quantity Law sets the number of laborers per hourly production demands, stipulates labor contracts, and determines remuneration in accordance with worker performance. This law is unprecedented in that it allows the responsible organization or business managers or supervisors administrative and even penal authority by giving them power over labor evaluations and payment.

The Farm Law allows each farm to retain some of its harvest, and making it responsible for selling its goods to the state, while on the other hand, forbidding illegal agricultural production. This law, by strengthening state control over agricultural goods, appears to be an effort to restart the Public Distribution System.

The Real Estate Law, a mechanism to collect user fees, stipulates, “Real estate cannot be lent or left to different individuals, groups, organizations or enterprises without the permission of the applicable authority.” Along with this, the law on consumption includes a clause that links consumption of particular goods with those goods’ production in order to prevent waste, as well as a clause designed to reduce or eliminate the use of imported goods.

The law on the import of construction materials gives the government leverage in all aspects of such activity, including planning, processing, transfer, inspection, construction and testing. In addition, if someone from an enterprise or organization imports construction goods without government authorization, changes an import plan, distributes, transports, or wastes construction wares, he or she is subject to administrative punishment.

Ultimately, economic legislation enacted or revised after the currency reform appears to be aimed at strengthening the planned economic system while increasing government control over public revenue and encouraging efforts to recover without outside assistance.

Scott Snyder wrote a good piece on recent developents in Rason fo rthe Jamestown Foundation’s China Brief:

The Rajin-Sonbong region in North Korea (also known as Rason following a 2004 administrative reorganization by central authorities) is an underdeveloped backwater near the far northeastern tip of the Korean peninsula bordering Jilin province of China and Primorsky Krai of Russia. Although the area is far from the nerve center of the North Korean regime, Pyongyang, Rajin-Sonbong has strategic significance as the northern-most year-round ice free port in Northeast Asia and therefore is an attractive geostrategic transit point for the shipment of goods to landlocked Northeastern China and the Russian Far East. For this reason, recent reports of new Russian and Chinese investment deals following a rare personal visit by North Korea’s supreme leader, Kim Jong Il, to Rajin-Sonbong in December of last year merit closer scrutiny.

Rajin-Sonbong has been the focal point of periodic efforts by Pyongyang to experiment with economic reforms since it named the area a free economic trade zone in late 1991. At that time, the Rajin port was an essential piece of a UN-sponsored regional development effort known as the Tumen River Area Development Project (TRADP)—which encompasses areas within China, Mongolia, Russia and South Korea—but the project never attracted sufficient international investment to take off. The spotlight returned to Rajin-Sonbong briefly in 1996 when North Korea sponsored an investor forum there in an attempt to stir up interest in a revamped set of investment laws for the region, but few investors came and North Korea’s famine later that year diverted attention away from the effort. 

(more…)

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
4/5/2010

Jin Hualin, dean of the College of Economics and Management at Yanbian University, talks about Chinese investment in Rason in China’s Global Times.  Here is an excerpt:

GT: If China does continue to rent Rajin harbor for another 10 years, what will the effects be?

Jin: China has reached an agreement to rent a pier at Rajin Port for another decade. A Dalian-based Chinese company has invested 26 million yuan ($3.8 million) in the reconstruction of Rajin Port No.1 Pier. Park also said that China may enjoy more favorable conditions there, such as more berths.

I think Chinese companies’ participation is good for promoting the North Korean economy and building logistical infrastructure in the area, which is beneficial to China, North Korea and the Northeast Asian countries.

When the Sino-Mongolia route is finished, raw materials and natural resources from Mongolia can be shipped to Japan and South Korea via Rajin harbor, and then China’s northeastern regions and North Korea can both benefit.

GT: What should China do to promote Northeast Asian cooperation and devel-opment?

Jin: I suggest Chinese governments at all levels consider the following issues. They should accelerate trade and tourism and build cooperation on logistics, and support Chinese companies going global and investing in North Korea.

Actually, China now has many companies capable of investing abroad. The point is foreign countries’ investment environment.

We should strengthen cooperation on education with North Korean universities and colleges, sending students to study there and exploring research in new areas together.

We can also strengthen regional cooperation. We can designate China’s Hunchun city and North Korea’s Rason city as pilot cities and permit China’s commercial banks to open yuan-based accounts in Rason’s commercial banks.

Relations between Northeast Asian countries are subtle and complicated because of geopolitical contradictions, different political systems, the influence of the Cold War, historical issues, territorial disputes and sentiments caused by historical and territorial issues.

Mutual distrust fundamentally hinders cooperation. China needs to take the responsibility to promote regional cooperation and make it institutionalized and legally guaranteed as soon as possible.

GT: How do you evaluate the political and economic risks for Chinese companies going into North Korea? What advantages do Chinese companies have?

Jin: There are always political and economic risks involved in trade between different countries. The first major solution is to establish a mutual investment guarantee agreement, so that the two countries’ economic cooperation will be protected legally.

We hope that North Korea can keep the stability and consistency of its policies and issue development policies that is in line with international conventions. As long as North Korea adopts consistent policies, Chinese companies won’t encounter great political and economic risks there.

China and North Korea are believed to enjoy good mutual trust. China has experience from its reform and opening-up and plenty of investment capability. North Korea has a good educational foundation, low labor costs, and rich natural resources.

Chinese companies are active participants in investing in North Korea and I believe they’ll do well there.

Read the full interview here. Hat tip to Adam.