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Archive for the ‘Gold’ Category
US Geological Survey of DPRK
Thursday, January 18th, 2007North Korea selling off gold reserves
Wednesday, December 27th, 2006Korea Herald
12/27/2006
North Korea, desperate for foreign currency under U.S.-imposed sanctions, has started to sell its gold reserves on international markets, a Japanese newspaper said Tuesday.
The United States last year blacklisted a Pyongyang-linked bank in Macau, infuriating the communist regime which walked out of disarmament talks for 13 months during which it tested an atom bomb.
Since the US crackdown on the bank, North Korea has earned 28 million dollars in foreign cash by exporting gold to Thailand, which had not imported gold from Pyongyang for the previous five years, the Yomiuri Shimbun said.
North Korea exported 500 kilograms of bullion to Thailand in April and another 800 kilograms a month later, the conservative Japanese daily said without identifying its sources.
North Korea’s central bank, Choson Central Bank was also re-listed on May 12 for trading on the London Bullion Market, said the newspaper, quoting a spokesman for the London market.
The North Korean central bank, which can issue currency, joined the London gold market in 1976 but was de-listed in June 2004 due to inactive trading, the newspaper said.
The Yomiuri, citing South Korean data, said North Korea was estimated to have between 1,000 and 2,000 tons of gold reserves.
The United States blacklisted Macau’s Banco Delta Asia in September 2005, saying it suspected that 24 million dollars in North Korean accounts were linked to counterfeiting or money-laundering.
The accounts have been frozen and other Asian banks have taken similar moves.
The financial sanctions were a main topic during six-nation talks, aimed at persuading North Korea to end its nuclear program, which ended in deadlock last week in Beijing.
Banco Delta Asia Says It Bought `Large Share’ of N. Korea Gold
Monday, December 11th, 2006Bloomberg (Hat Tip DPRK Studies)
12/11/2006
Stuart Biggs
Banco Delta Asia S.A.R.L., the Macau, China-based bank accused by the U.S. of money laundering for North Korea, said it bought gold from the communist state in a filing to the U.S. Treasury.
North Korea has made the unfreezing of about $24 million in assets held at Banco Delta Asia a pre-condition to returning to six-nation talks over its nuclear weapons program that broke off in September 2005. The U.S. alleged that the bank helped North Korean officials accept “surreptitious” multi-million dollar transactions, some linked to drug trafficking.
Banco Delta Asia, in an Oct. 18 letter to the U.S. Treasury Department by law firm Heller Ehrman LLP, said the bank “purchased a large share of the gold bullion produced by North Korea” prior to the allegations and no longer does so.
“Money could have been laundered, but there is no specific evidence that the bank was aware that it was being used for this purpose, nor that it facilitated any criminal activities,” the letter said. The bank “paid insufficient attention to maintaining its own books.”
Banco Delta Asia also said North Korea’s Tanchon Commercial Bank, described by the U.S. as the Pyongyang government’s main financial agent for sales of arms and ballistic missiles, remained a customer for three months after Tanchon was blacklisted by the U.S. in June 2005 “due to shortcomings in the information technology systems.”
The bank said it put in place new managers after the U.S. action and closed North Korean-related accounts, hired an outside firm to set up procedures against money laundering and asked the Treasury to reconsider its ruling.
“The Bank has not done any business with North Korean or North Korean-related entities for over a year and pledged not to do any in the future,” the letter said.
The six-party negotiations may resume on Dec. 18 or 19, Yonhap News Agency reported, citing unidentified South Korean government sources.
Nautilus Institute: DPRK Reform and PRC relations
Wednesday, August 23rd, 2006Policy Forum Online 06-70A: August 23rd, 2006
DPRK’s Reform and Sino-DPRK Economic Cooperation
Analysis by Li Dunqiu
CONTENTS
I. Introduction
II. Analysis by Yi Li Dunqiu
——————————————————————————–
I. Introduction
Li Dunqiu, Director of Division of Korean Peninsular Studies at the Institute of World Development Center of Development Studies, writes, “Sino-DPRK economic cooperation is growing in depth and width but both sides adopt a low-profile and practical attitude… In fact Chinese enterprises, both private and state-owned, are looking for greater room for their future development as a result of the constantly improving market economy in China. Amid such backdrop, the DPRK naturally becomes their target…It is not difficult to see that laws of the market economy are the most fundamental reason behind Chinese enterprises’ investment in DPRK.”
The views expressed in this article are those of the author and do not necessarily reflect the official policy or position of the Nautilus Institute. Readers should note that Nautilus seeks a diversity of views and opinions on contentious topics in order to identify common ground.
II. Analysis by Li Dunqiu
– DPRK’s Reform and Sino-DPRK Economic Cooperation
by Li Dunqiu
DPRK’s change is by no means accidental. It has its profound international and domestic backgrounds. DPRK has made tremendous efforts in shackling off the shadow of the Cold War and integrating into the constantly changing international community, but with little result. Leaders of DPRK have no choice but to explore a new way that suits its country. Amid this backdrop, DPRK is slowly but steadily promoting its reform, which is low-profile but pragmatic.
From the end of 1990s, DPRK has begun to make adjustments to its economic theories and policies, putting forward such new views and propositions as pragmatism, building a strong socialist country, focusing science and technology, new concepts and improving economic management modes. A series of “Measures to Improve Economic Management Order” was issued on 1 July 2002. The adjustment this time, comparing with previous ones, was strong in enforcement and wide in the areas involved, thus injecting new impetus in its economic recovery and development. Though DPRK’s economic reform is only introducing rational elements of the market economy to make up pitfalls of its planned economy with the prerequisite of adhering to the latter, it should be commended as a major innovation in DPRK’s theories and practice in building socialism. Early this year, we saw new phenomenon from the DPRK side. It started with Kim Jong Il ‘s visit to China accompanied by premiers of the State Council in mid-January to learn the successful experience of China’s reform and opening up, followed by Chang Song-taek’s eleven-day China inspection tour accompanied by over thirty high-ranking economic officials, and then Cabinet Premier Pak Pong Ju’s elaboration of this year main tasks in economic work on the Fourth Plenary Session of the Eleventh Supreme People’s Congress. These new changes were not only widely reported but also aroused great interest among the international community in the country’s economic changes.
I. DPRK’s Guiding Principle Undergoing Quiet Changes.
Basic Theories of DPRK’s Economic Reform
At present DPRK has not yet established systemic theories to guide its economic reform. But Chairman Kim Jong Il has proposed new ideas which have become the basis for its economic reform.
Pragmatism
It was first proposed by Kim Jong Il after he became General Secretary of the DPRK Labor Party. There is no works which systematically elaborates Pragmatism. But according to economists from DPRK, pragmatism has two meanings, i.e. to bring actual benefits for the people, and to be profit-oriented instead of suffering losses. The former is the principle while the latter is the detailed content.
To follow the rule of pragmatism in economy is to seek economic benefits and for companies to make profits. To this end, the Fiscal Law amended by DPRK in April 2004 changed the ultimate goal of companies from “reducing cost” to “increasing net income”, so as to help them be profit-oriented. At present, pragmatism is the principle that must be followed in all DPRK’s economic work. Its economists have vividly compared it with China’s “seeking truth from facts”. It is fair to say that pragmatism will become theoretic basis for people in DPRK to liberate their minds and promote economic reform.
Theory with Economic Development at the Core
The strategy that DPRK has established with economic development at the core is mainly embodied in its goal of “building a strong socialist country”. Entering into the new century, DPRK has proposed three targets including building its country into a strong military, political and economic power. It maintains that it has already achieved the first two with the third one yet to achieve. As a result, the goal of “building a strong socialist country” means that economic development is its core task at the moment.
Theory of “New Thinking”
Labor News, DPRK People’s Army and Young Pioneers DPRK, in their joint editorials on the New Year Day of 2001, put forward the “new thinking”, stressing that “priorities at the moment were fundamental changes in ideas, ways of thinking, styles of struggle and work to meet requirements of the modern times”. Chairman Kim Jong Il also pointed out that, having entered the modern times, it is necessary to update thinking according to the new times instead of living the old way on the basis of the past, and that they should boldly abandon those that should be abandoned instead of being restricted to the old ideas and sticking to the past and the outdated. “In the 21st century efforts should be made to approach and solve all questions with new ideas and from new height.” In addition, DPRK’s Labor News pointed it out in its editorials that “they should be bold in reform”, “further improve DPRK’s economic management system to meet the requirement of the new environment and new atmosphere”, and that priorities for the Labor Party in the 21st century is to ensure that the ideas, ways of thinking and working styles conform with the requirement of the new century.
Approach the Word “Reform” with Prudence
Though DPRK introduced elements of the market economy through constitutional amendments in 1998 and consequently adopted some reform measures, it strongly dislikes such words as “reform” and “opening up” and they are forbidden in the adjustment of its economic policies.
Despite this, the essence is “reform”, though different in word, evidenced in their newly issued policies for economic adjustment which were targeted at the outdated demands and practices that were divorced from reality. DPRK’s Labor News pointed it out in an article entitled “On the Rules of Socialist Economic Development” on 21 November 2001 that “those who manage the economy, i.e. people of DPRK, do not have enough experience, there are still room for improvement and perfection due to short history of socialism, and that the economy cannot be developed if those that are outdated, backward and separated from reality are not abandoned.” It is clear that this kind of “abandoning” has the implication of “reform”. Therefore it is reform unsuitable for DPRK instead “reform” itself that it is opposed to. In fact it is nonetheless progressing with economic reform both in theory and in practice in spite of it all. It was not until June 2003 that DPRK’s Central News Agency finally used the word “reform” though it quickly dropped the word again. The reason behind its prudence with the word “reform” is because it once openly expressed its opposition to and criticism against reform in China and former Soviet Union in its major official media.
Learn Reform Experience from Foreign Countries
DPRK’s supreme leader Kim Jong Il has visited China for four times since 2000, most of which were aimed at inspecting China’s economy. His unofficial visit to China from 10 to 18 January 2006 and inspection of China’s economic work in Beijing, Hubei and Guangdong Provinces attracted great attention from the international community.
The nine-day visit in China was rich in content, clear in objective and profound in significance. Kim brought his team to Beijing, Wuhan, Yichang, Guangzhou, Zhuhai, Shenzhen and they listened carefully to introductions made by government officials and companies managers in those provinces and cities, with the aim of learning and drawing upon China’s experience. He was deeply touched and impressed and even had “sleepless night” when he arrived in Beijing following the tour in China’s south. He said that he was unwilling to see the current situation in DPRK and hoped to see further progress in its economic and social development by absorbing the vigor and vitality from the market economy while continuing its planned economy; that he hoped to learn from China and do a good job in DPRK’s future economic development by combining its national conditions with actual situation. It was the first time for him to voice such opinions, indicating that leaders of DPRK were transforming their mode of thinking, acknowledging and accepting China’s development concepts; and that they were exploring laws of economic development in order to prepare for profound and comprehensive reform with DPRK style.
It is more important to note that the visit gave him a chance to see the fact that China’s reform had neither weakened the leading role of the Chinese Communist Party nor aroused social upheaval. It had instead enhanced the reputation of the Communist Party and its international influence, which removed his worry that reform and opening up might undermine the stability of the authorities. Shock waves continued among the high-level officials after he came back from the visit. Unprecedented views were voiced and new explanations made on major theoretic questions like what was socialism, how to evaluate capitalism. High-level officials were asked to theoretically keep abreast with the times and unify their thinking.
Only two months later, Chang Song-taek, First Deputy Minister of the Department of People’s Group and Capital Construction of the Central Committee of the DPRK Labor Party, headed an “expert team” of over thirty high-ranking economic officials to the places that Kim had just visited. His 11-day visit was yet another demonstration of DPRK’s aspiration to learn from China. In addition, DPRK also sent various economic delegations to China to study its experience in reform. It started to send trainees to China, Viet Nam and countries in Europe since its economic reform in 2002, equipping them with knowledge of market economy, finance, trade and hi-tech in particular. It thus started its nationwide campaign from the top down to study economics.
II. DPRK’s Economy and Current Policy Options
From 2000 DPRK has gained positive economic growth from the previous negative one. Of course the rate was very low, around 0.5%–1% for six years in running. Some estimated that growth rate in 2005 reached 2%, an opinion shared by some DPRK officials though genuine figures were hard to obtain in the country. DPRK’s economy has recovered and is poised to continue its steady growth in 2006.
There are two sets of mechanisms in DPRK, i.e. the military and the civilian. The most important economic sectors are controlled by the military, a noticeable feature of its economy. Strength and efficiency of the factories run by the military are higher than their civilian counterparts. Take the Taean Glass Factory for example. It was built with the assistance of the Chinese Government. At first a civilian factory was designated but its workers were low in efficiency and poor in quality, with which the Chinese side became dissatisfied. Consequently a military factory took up the role and all went well afterwards. With good cooperation, the project was successfully completed. This example showed that talents of economic development are mostly with DPRK’s military. It is therefore, like China in its first phase of reform and opening up, formulating policy to transform some military factories into civilian ones to support local economic growth.
All signs show that economic work has become the priority of DPRK. Leaders of the country and the Labor Party are concentrating their time and efforts on economic work. Main measures for this year are as follows:
Agriculture is the main task of this year’s economic development.
The Fourth Plenary Session of the Eleventh Supreme People’s Congress was convened on 11 April, on which Premier Pak Pong Ju delivered a report entitled Review of Work in 2005 and Plan for 2006. He stressed that the central task of the economic development for this year was “to develop agriculture in a decisive manner to successfully solve the food problem for the people in DPRK”.
In recent years DPRK has always taken agriculture as the “primary task” of its economic development. In order to solve food shortage it launched “Potato Revolution” and “Seed Revolution” in 2001, advocating the growth of agricultural crops with short mature periods and great harvests. Agricultural technicians cultivated new breeds of potatoes with no virus and high yields, in order to “supplement rice with potatoes”. Thanks to increased government input in agricultural production and development in agricultural science and technology, grain production has risen in recent years, reaching 4.6 million tons in 2005, the highest in ten years. With experience accumulated and benefit gained, DPRK has realized the importance of agriculture. It will continue to take it as the priority and central task of this year’s economic work. It is especially notable that when Kim Jong Il visited China last January, he went to the Crop Institute of the Chinese Academy of Agricultural Science, a sign which fully vindicated the importance attached to agricultural science and technology.
Work Hard to Develop Foreign Trade and Attract Foreign Investment.
Premier Pak Pong Ju stressed in his above-mentioned report that it was necessary to work hard to develop foreign trade and actively explore foreign markets to achieve diversification and multi-lateralization of trade in accordance with the changing environment and practical demands. DPRK has enhanced foreign trade up to an unprecedented height, which was a new change itself. Though US had begun its financial sanction against DPRK since the end of last year, its foreign trade increased by a large margin in 2005, reaching 3 billion USD in total, the highest since 1991. Trade between DPRK and ROK reached 1.05 billion USD in 2005 and this figure was not included in the total volume. It is estimated that this year DPRK will actively explore new markets in the EU and ASEAN countries while continuing to grow its trade with China and ROK.
China is DPRK’s largest trading partner. Sino-DPRK trade reached a historic high at 1.58 billion USD in 2005, up 14%. China’s export accounted for two thirds of its total. DPRK mainly imported food and energy from China, up by 35.2% annually and reaching 1.08 billion USD in 2005. Growth in Sino-DPRK trade was partly attributed to decrease in bilateral trade between DPRK and Japan, which stood at 0.194 billion USD in 2005, down by 23%.
Meanwhile DPRK is working actively to introduce foreign investment, including capital and technology. It organized two international commodities fairs, one in the 1980s and the other in the 1990s, to be followed by annual fairs every spring since 2000. The fairs were then held twice every year since 2005, one in spring and one in autumn.
The 9th Pyongyang Spring International Fair was grandly held from 15 to 18 May 2006. The total area of the exhibition hall was 16.5 thousand sq meters and it hosted 217 companies from 13 countries and regions in the world including China, the Netherlands, France and Germany. Products on display ranged from chemicals, electronics, pesticides, agricultural machines to cosmetics, pharmaceuticals and foods. Of the 196 foreign participating companies, 179 were Chinese, with 80% from China’s Liaoning Province. Contractual value topped 100 million Euros.
Ms Choe Lian-shi, Division Chief of DPRK’s Bureau of International Exhibition, said in her interview with the Xinhua New Agency that the main purpose for such fair was to help DPRK companies to know the world and for the world to know DPRK’s market. It was also to help DPRK companies establish links with their foreign counterparts in order to promote export, explore international markets and introduce advanced foreign technology to promote its economic development.
She pointed out that during the fair held last year, contracts, both for import and export and joint ventures, valued 70 million Euro, among which, export contracts amounting 30 million Euro, import contracts 32 million Euro and joint venture 8 million Euro.
She also stressed that Chinese companies took up the bulk of the participants. They came this time with the China Committee for the Promotion of International Trade, which made them more orderly and organized. All this showed that economic relations between China and DPRK were constantly developing and trade has become more active.
Apart from this DPRK also cooperates with the relevant sides in China to hold commodity fair and trade and investment talks in Beijing, Dandong and other cities in China several times a year.
Recently DPRK has organized some companies suitable for foreign markets to go outside the country to conduct foreign trade and economic cooperation. Construction companies in DPRK like Foreign Construction Co. sent thousands of experts and technicians to scores of countries and regions including Russia, Bangladesh, Kuwait and Libya to engage in project and labor contracting. Mansudae Overseas Development Group undertook to build bronze statues, monuments and other works of arts, and fit out buildings and parks in over 70 countries and regions to earn foreign currencies for the country. President statues in the seven African countries like Equatorial Guinea, Togo and Gabon, monument of the people’s heroes in Ethiopia, and the grain museum in Malaysia were all works of the company. DPRK Industrial Tech Co. opened branches in China and other countries to conduct trade in new technology, inventions and patents by replying on the institute and production bases attached to DPRK’s Academy of Sciences.
Improve Modes of Economic Management
Premier Pak Pong Ju also stressed in the report that efforts should be made to improve modes of economic management, to ensure practical benefits while reflecting socialist principles. DPRK has carried out factory and company reform through market price instead of planned price. It will also partially give up the state plan in production and sale. These measures are not only suitable for small- and medium-sized factories and enterprises but also for large-sized ones. Governments may purchase products from them according to market prices. They are also allowed to introduce foreign capital, establish joint-ventures or earn profits through trade within their capacity.
Speed up Development of Science and Technology
Another agenda of the Fourth Plenary Session of the Eleventh Supreme People’s Congress was extremely noticeable. It was the report entitled Speed up Development of Science and Technology to Build a Strong and Prosperous Country, delivered by Choe Thae Bok, Secretary General of the Central Committee of DPRK’s Labor Party. Development of Science and Technology as one of the priorities of DPRK’s future development, the report was regarded as indication of the importance attached to science and technology development and its aspiration to embrace the information society. A strategic goal of its science and technology development is to become a major software country by 2022.
It is not common for DPRK’s Supreme People’s Congress, its highest body of power, to add on the agenda the development of science and technology. Media in DPRK have stressed on many occasions that the 21st century is a century of science and technology and a century of information, and that without the development of science and development it is impossible to achieve the goal of “building a strong and prosperous country”. The Supreme People’s Congress deliberated carefully and adopted the report, fully testifying its importance on science and technology and the fact that science and technology development had become a nationwide consensus.
Special Economic Zones remains an important option for DPRK.
Kae-song Industrial Park is a successful cooperation between DPRK and ROK and the two sides have decided to expand its scale on the current basis. Covering an area of 10,000 sq meters, it is planned to expand to 1 million sq meters. Many small- and medium-sized enterprises in ROK intend to invest and start business in the park as labor price in China’s coastal region in the south east is rising. Products manufactured there can be regarded as ROK-made and exported to a third country.
The DPRK Government might copy China’s special economic zones to establish new such zones along the border areas between China and DPRK. It is reported that DPRK planned to establish a new economic zone on the Bidan Island on the lower reaches of the Yalu River and build it into a future financial center. The establishment of such zones remains an important option for DPRK but it is also very prudent due to previous failure.
III. DPRK’s Energy and Mineral Recourses
DPRK has severe shortage of energy, especially oil. 90% of its oil supply comes from China. It also has oil trade with Russia but the amount is trivial as it does not have enough foreign currency. Russian oil companies sell oil to DPRK at price lower than international market price. DPRK has almost no oil reserve to speak of. It is currently working actively with China to exploit oil in its West Sea.
Electricity is also in short supply in DPRK though its supply is slightly better compared to oil. DPRK is rich in water recourses so the Government tries to develop small hydro power stations. And in accordance with the principle of those who develop will benefit, local governments are encouraged to build such projects according to their own conditions, and with good results. It is claimed by DPRK officials that the country is in fact equipped with conditions to build large hydro power stations. That’s why Kim Jong Il and other high-level officials in DPRK visited China’s Three Gorges Hydro Power Project in Yichang early this year. But because of its tension with US and its fear of conflicts or wars, the Government only encourages small- and medium-sized hydro power stations before its relations with US has improved. In addition, it also stresses thermal power since it is rich in coal and able to provide sufficient fuel. Consumption of coal ranks the first among all energy, to be followed by hydro power.
DPRK is now studying new energy and hopes to convert it into actual use in production and life, i.e. solar power and biogas.
There are four important recourses in DPRK: rich forest resources; important mineral resources like abundant coal, iron ore, graphite, gold, silver, lead, zinc, magnesite, all of which now allow the participation of foreign companies; 8600-kilometer coasts with no pollution, which are rare in the world and hold great potentials for fishing, aqua-culture, processing of sea food once foreign capital and technology are channeled in; rich tourist resources, that may become one of its future pillar industries.
DPRK has abundant mineral recourses, with over 360 kinds confirmed and 200 kinds economically viable. It is noticeable that the reserve of its magnisite ranks the first in the world, accounting for 56% of the world’s total. Its top ten minerals include tungsten, molybdenum, graphite, heavy spar and fluorite. The reserve of copper and ilmenite is calculated in tens of millions of tons and that of white jade, jadeite, black jade and sand jade is also abundant. Since it has such a large reserve of metal and energy mines, 70% of its industrial raw materials and fuels are self-sufficient. But there is no oil and pitch coal (raw material for charcoal), both of which are necessary for iron and steel industry though anthracite and brown coal are abundant. Coal, iron ore, lead and zinc core, limestone and magnisite take up the bulk of DPRK’s mineral industry but only 30% of the capacity is utilized due to restrictions of outdated equipment and poor technology. Iron ore is exploited in over 20 mines represented by Musan Mine. With a reserve of 1 billion tons, it is a famous open mine in the world and the largest in a country with an iron output of 8 million tons. Production of iron ore grew by 2-3% since 1970s, as a result of expansion and development of iron mines. But the growth has slowed down recently due to poor results of prospecting and outdated equipment. Foreign capital is now being introduced.
DPRK’s coal is divided into anthracite and bituminous coal. The former is mainly located in Pyongan-namdo and Pyongan-bukto while the latter in Hamgyong-bukto and Hamgyong-namdo. According to administrative division, there are four major coal mines in DPRK, namely Pyongan-namdo Mine, Pyongan-bukto Mine, Hamgyong-bukto Mine and Hamgyong-namdo. Currently there are over 100 national coal mines, 70 anthracite mines and 30 bituminous coal mines, and over 500 small- and medium-sized local mines.
In the 80-kilometer belt in the south of Pyongan-namdo stretching from east to west with Pyongyang at the center, the reserve of anthracite is abundant. Notable mines include Samsin (Samsindon, Daefon-gu) , Sadon (Sadon-gu), Ryongzen (Ryongzen-gu), Haelyong (Ladonza-gu, Haelyong, Gangdon-gun), Gangdon (Gangdon-gun), Gangso (Gangso-gun), Zencun (Zencun-gun), Wonstun (Wonstun-gun). There is anthracite in 668 sq kilometers in the north of Pyongan-namdo. Main coal mines there include those in Donstun, Syongbun, Jaenam, Joyang of Ganstun, Ganstun, Bonstun, Yamzum, Wyonlae, Xinlyon, Sonam of Bugstun-gun, Xiandon, Xinstun of Ensam-gun, Stunzen, Yongdae, Sunstun, Mujindae, Gigdon, and Ryongden, Ryongmun and Ryongcel of Kujang-gun, P’y?ngan-bukto.
Bituminous coal is mostly concentrated in the North Mine (north of Aoji) and South Mine (south of Chongjin) in Hamgyong-bukto and Anju Mine in Pyongan-namdo. Largest coal mines in the north include Aoji Mine in Undok-kun, Obun Mine in Musam, Hue Ryon Mine. There are seven ore strata that are 2-5 meters in depth in Anju Mine, producing brown coal of 5300kcal. With an annual output of 7 million tons, it is thus the largest mine in DPRK.
DPRK’s proven coal deposits are 14.74 billion tons, 11.74 being anthracite and 3 billion tons brown coal. Recoverable reserve, allowed by the current technology, is about 7.9 billion tons. Its coal production has dropped since the end of 1980s due to restrictions of technology and equipment. (See the table below for annual production since the 1980s)
*Unit: 10,000 tons
| Year | 1980 | 1985 | 1990 | 1993 | 1995 | 1999 | 2000 | 2002 |
| Production | 3,027 | 3,750 | 3,315 | 2,710 | 2,370 | 2,100 | 2,250 | 2,190 |
IV. Rapid Growth of Sino-DPRK Trade and Economic Cooperation
Sino-DPRK trade and economic cooperation grows at an eye-catching pace. With trade accounting for 40% of its total and investment 70%, China has thus become DPRK’s largest trading partner and source of investment. DPRK has been more dependent on China in food and energy supply. Main ports between the two countries have become or are becoming major vehicles of bilateral trade and economic cooperation. The friendly visit by Chinese President Hu Jintao to DPRK in October 2005 and Kim Jong Il’s China visit in January this year have further promoted political and economic cooperation between the two countries and injected new impetus in bilateral trade.
Trade between China and DPRK has increased by 14%, reaching 1.6 billion USD. DPRK import commodities like oil and corn from China, worth 1 billion USD, and export commodities like coal and iron ore to China, worth 0.5 billion USD. According to the statistics from Dandong Customs, 1.86 million tons of import and export went through the Dandong Port in 2005 at a value of 0.84 billion USD, up both in quantity and value by 10%, with 0.45 billion USD in China’s favor. It is estimated that DPRK will continue to expand trade with China this year. The two countries have planned to build a new road bridge across the Yalu River to meet the demands of the constantly growing trade.
Sino-DPRK Trade Volume from 1997 to 2005
*Unit: 100 million USD
Year DPRK’s Total Foreign Trade DPRK’s Trade with China China’s Export China’s Import
| Year | DPRK’s Total Foreign Trade | DPRK’s Trade with China | China’s Export | China’s Import |
| 1997 | 21.7 | 6.5 | 5.3 | 1.2 |
| 1998 | 14.4 | 4.1 | 3.5 | 0.6 |
| 1999 | 14.8 | 3.7 | 3.2 | 0.5 |
| 2000 | 19.7 | 4.8 | 4.5 | 0.3 |
| 2001 | 22.7 | 7.37 | 5.7 | 1.6 |
| 2002 | 22.6 | 7.33 | 4.6 | 2.7 |
| 2003 | 29 | 10.23 | 6.3 | 3.9 |
| 2004 | 31 | 13.85 | ||
| 2005 | 40.5 | 15.8 | 10.8 | 5 |
In recent years Chinese businessmen have accelerated their investment in DPRK. Those who took the lead in investing DPRK mainly came from Zhejiang, Jilin, Liaoning, Jiangsu and Guangdong Provinces with Zhejiang businessmen taking up the bulk. In 2003, 40 businessmen from Wenzhou, Yiwu, Dongyang, Cixi and Hangzhou headed by Lu Yunlei, agreed on cooperation intent with the operators of Pyongyang No. 1 Store. Guhui Trading Co. lead by Lu, obtained, unexpectedly, operating right of 15,000 sq meters of the store and corresponding 9,000 sq meters of warehouse. The deal was signed on 6 August 2003. Lu commented that what he valued was the market potentials in a country that was opening up. Lu also disclosed that he would invest several million of RMB to renovate the store and that operating space in the store would cover 10,000 sq meters, divided into over 300 booths to be further rented to Chinese businessmen to wholesale and retail small Chinese commodities, daily necessities in particular. The Zhejiang businessman commented opportunities in DPRK like this: “It is better to have our presence in the country but don’t expect too much from the first phase”.
It was the private companies that gave rise to the first wave of investing in DPRK. The second wave in 2005 was mostly generated by large state-owned enterprises, in areas like heavy industry, energy, mineral recourses and transportation, different from the first one.
At present DPRK has agreed to the joint-venture between China National Metals and Minerals Import and Export Corporation and its ??Coal Mine. This is not only the first established by China outside DPRK’s special economic zone but also represents an important measure by DPRK to open its recourses. Rydongden Coal Mine is the largest anthracite mine in DPRK. Covering an area of 18.8 sq kilometers, it has a reserve of 0.15 billion ton, 0.125 billion of which is recoverable. Its annual output is 1 million tons, equal to a medium-sized coal mine in China.
According to report issued by the Development and Reform Committee of Jilin, the province has reached a “barter” agreement with DPRK, transmitting electricity to the country in exchange of the mining rights of its Youth Copper Mine. With a total investment of 0.22 billion RMB, it is a typical experiment by DPRK to exchange electricity with mineral recourses. Jinlin Tonghua Iron and Steel Group will obtain 50-year mining rights in Musan Iron, the largest in DPRK, at a price of 7 billion RMB. Musan Iron, located in Hamgyong-bukto is the largest open mine in Asia, with proven reserve of iron powder about 7 billion tons. With iron content as high as 66%, it is able to be smelted directly.
Gold reserves in DPRK are also very rich. Guoda Gold Shareholding Co. Ltd., in Zhaoyuan, Shandong Province signed an agreement in 2004 with DPRK on gold exploration and smelting project. According to the agreement, a joint-venture would be set up for gold mining in ??? and bring back the ore to the company for smelting. ??? Gold Mine, which was set up quite early, has a considerable reserve and at least 150 tons can be recoverabled. But due to the lack of capital and outdated technology, operation of the mine has been at a standstill.
In September 2005 DPRK sold the 50-year exclusive operating rights of Najin wharf to Huichun, Jilin, in order to get the latter’s support for building a road from Tongsungu, Wonstunli, Kasung-si, to Najin Port. Sources from the Administrative Committee of the Border Economic Cooperation Zone in Huichun, Jilin, disclosed that the sale this time of the wharf in Najin Port was more of a corporate instead of government act. It was said that Fan Yingsheng, a real estate developer from Hunan, was the mastermind behind the deal and he alone would channel half of the 60 million Euro in payment.
Capital from Hong Kong is also coming. Early investments were mainly channeled to hotels, restaurants and the entertainment industry. But according to a recent report from Hong Kong media, a local businessman Qian Haoming reached a 3-billion USD agreement with the DPRK Government and China’s Ministry of Railway to build a railway from Tumen, border city in China, to Chongjin, port in DPRK. The agreement signifies that the deadlock between railway authorities of the two countries is being broken. There used to be three pending questions with the DPRK railway, i.e. overstock, arrears and withholding of Chinese cargo carriages. This forced the Chinese railway authority to take measures to restrict transportation between the two countries, like intermittent loading and goods limits. Statistics show that over 2000 carriages were held up in DPRK in 2004, 260 of which were for coal. It is reported that Hong Kong International Industry Development Co. Ltd., headed by Qian Haoming, promised to provide 500 to 1000 carriages to DPRK as required by the agreement.
Preliminary agreements have been reached at the moment between China and DPRK concerning minerals, railway and port lease. Sino-DPRK economic cooperation is growing in depth and width but both sides adopt a low-profile and practical attitude. It is necessary to point out that such development has aroused concern from relevant countries in North East Asia, which mistake China for having political motives. In fact Chinese enterprises, both private and state-owned, are looking for greater room for their future development as a result of the constantly improving market economy in China. Amid such backdrop, neighboring country DPRK naturally becomes their target. There are plenty of Chinese enterprises with strength ready to come into DPRK, more active than the government policy allows. During the National People’s Congress last march, delegates from local enterprises proposed a motion to the Central Government, calling for policy and legal guarantees for expanded and deepened economic cooperation with DPRK, including the establishment of special economic zones and free trade areas. It is not difficult to see that laws of the market economy are the most fundamental reason behind Chinese enterprises’ investment in DPRK.
North Korea’s Kim Allows Tentative Stirrings of Profit Motive
Wednesday, December 28th, 2005Bloomberg
Bradley K. Martin
12/28/2005
A sign of North Korea’s fledgling moves toward a market economy can be found at the Pyongyang monument commemorating the 1945 founding of the Workers’ Party. Beneath a 50-meter-tall rendition of the party’s logo — a hammer, sickle and writing brush — sits a street photographer.
A handmade sign displays her price list and sample photos, mostly of groups of North Korean visitors, with the monument as background.
The photographer is one of countless sidewalk entrepreneurs – – most of them selling food and drink — who have set up shop in North Korea since 2002. Before that, they would have been hauled off to re-education camps for profiteering. In the late 1990s, North Korea’s Civil Law Dictionary described merchants as a class to be eradicated because they “buy goods from producers at a low price and sell them to consumers at a high price by way of fraud, deceit and spoils.”
Since then, the party newspaper, Rodong Shinmun, has quoted Kim Jong Il, who’s held supreme power since the 1994 death of his father, Kim Il Sung, as favoring profits under socialist economic management.
North Korea, one of the world’s last Stalinist regimes, has gradually begun permitting commerce. On a four-day visit to Pyongyang, the capital, in October — arranged and scripted by the government — a group of 17 Western journalists got a glimpse of the changes. Clean, new restaurants were packed with paying customers while the streets — almost empty in 1979 and only lightly traveled in ’89 and ’92 — bustled with bicycles, motorbikes and Japanese sedans.
Casino Pyongyang
In the state-owned Yanggakdo Hotel on an island in the Taedong River, a mostly Chinese clientele played slot machines, cards or roulette at the Casino Pyongyang. Since 1998, Macau billionaire Stanley Ho, through his Sociedade de Turismo e Diversoes de Macau SARL, has invested $30 million in the casino, whose staff is also Chinese.
Now some investors from farther afield are joining pioneering Chinese and South Koreans in plunging into a country once so isolated it was known as the Hermit Kingdom. In September, Anglo- Sino Capital Partners, a London-based fund manager, said it had formed the Chosun Development & Investment Fund, which plans to raise $50 million for investments in North Korea.
“It’s the last virgin economy,” says Colin McAskill, 65, a director of Anglo-Sino and chairman of Koryo Asia Ltd., which is investment adviser to the new fund.
Natural Resources
Besides recent changes in the economic system, a 99 percent literacy rate and a minimum wage for workers in foreign-invested ventures of only $35 a month, McAskill says, he was drawn by North Korea’s rich natural resources — including iron ore, copper, lead, zinc, molybdenum, gold, nickel, manganese, tungsten, anthracite and lignite.
The fund will concentrate on North Korean companies that have been active internationally in the past, with track records as foreign currency earners, says McAskill.
He negotiated on behalf of North Korea with foreign bank creditors in 1987, when the country was unable to repay some $900 million in balance-of-payment loans that had enabled the regime in the 1970s to purchase Western industrial technology — Swiss watch-making machinery, for example — as well as such non-capital goods as 1,000 Volvo sedans from Sweden.
Oil Potential
The country’s petroleum potential lured Dublin-based Aminex Plc and its Korea-focused subsidiary, Korex Ltd., which in August announced the signing of a nine-year production-sharing agreement to explore and develop 66,000 square kilometers (25,000 square miles) of North Korean territory. The agreement covers areas in the Yellow Sea’s West Korea Bay and in the Sea of Japan as well as onshore.
While North Korea lacks proven petroleum reserves, according to the U.S. Energy Information Agency, the West Korea Bay in particular may contain hydrocarbon reserves, as it’s considered to be a geological extension of China’s oil-rich Bohai Bay.
More foreign investment may come, says Tony Michell, a Seoul- based consultant on North Korea. Michell, a 58-year-old Briton, says he has recently shepherded 20 senior managers of international companies, representing seven nationalities, to Pyongyang.
“They’re big players,” says Michell, declining to identify his clients by name or company. “They’re looking at everything, from services to manufacturing. They want to get the measure of the North Koreans and be ready if the six-party talks succeed.”
Six-Party Talks
The so-called six-party talks — between North Korea and China, Japan, Russia, South Korea and the U.S. — are aimed at ending the country’s pursuit of nuclear weapons. In September, the six countries agreed on a statement of principles to govern further talks. It called for a nuclear-free Korean peninsula, a peace treaty and economic cooperation in energy, trade and investment.
Seoul-based Hyundai Research Institute, an affiliate of the Hyundai Group, projected in September that a successful outcome to the talks would be worth as much as $55 billion to the economy in the North — and more than twice that in the South.
Optimism about the economy has boosted the prices of defaulted North Korean debt originally owed to hundreds of creditors, mostly European banks, which in the 1970s began meeting as a London-based ad hoc group to discuss restructuring options. In the 1990s, that so-called London Club turned a portion of the debt into Euroclearable certificates, securities that were denominated in Swiss francs and German marks.
The certificates are trading at about 20-21 percent of face value, up from 12 percent in 2003, according to London-based Exotix Ltd., a unit of Icap Plc, one of a few financial firms that make an over-the-counter market in them.
Excessive Optimism
The debt’s price has risen in the past on excessive optimism about the country’s future. In early 1998, the debt was trading at nearly 60 percent of face value amid rumors that North Korea would collapse imminently and be absorbed by wealthy South Korea, which would then make good on the entire outstanding debt.
That had not happened by the time of the crash later that year in global emerging-market securities, when the North Korean debt price sank to about 25 percent of face value.
Exotix estimates that North Korea owes the equivalent of some $1.6 billion in principal and interest to banks out of a total $14 billion in principal and interest owed globally to mainly communist and formerly communist countries.
Although a cease-fire was declared in 1953 in the war between North Korea and China on one side and the United Nations — under whose flag the Americans, South Koreans and others had fought — on the other side, no peace treaty has ever been signed.
The U.S. maintains sanctions under the Trading with the Enemy Act that restrict trade and financial transactions with North Korea — and apply to Americans and permanent residents of the U.S. and to branches, subsidiaries and controlled affiliates of U.S. organizations throughout the world.
China, Russia
North Korea’s flirtations with capitalism are belated compared with those of China and the former Soviet Union, which began opening their economies in the 1970s.
North Korea did pass a law legalizing foreign investment in 1984. The law, which permitted equity joint ventures between state enterprises and foreigners, attracted only $150 million in investment during the following decade, largely because investors were put off by the country’s poor roads, railroads, power systems and phone networks and by official interference in joint ventures’ recruitment, dismissal and compensation of workers, according to a 2000 thesis by Pilho Park, a postgraduate student at the University of Wisconsin Law School in Madison.
Vietnam Example
In contrast, Vietnam lured $7.5 billion in investment in the first five years after it opened its economy to foreign capital in 1988, Park wrote.
Following the collapse of European communism in the early 1990s, North Korea opened the Rajin-Sonbong Free Economic and Trade Zone on the northeastern border with China and Russia. A brief flurry of investor interest ensued and then fizzled out when a crisis over the country’s nuclear weapons program took North Korea to the brink of war with the U.S. and South Korea in 1994.
In the mid ’90s, catastrophic floods, combined with the collapse of the global communist system of aid and preferential trade, caused a severe energy shortage that crippled the economy. As much as 70 percent of manufacturing capacity went idle, according to the South Korean central bank.
Also in the mid ’90s, famine killed as many as 2.5 million North Koreans, by the estimate of the U.S. Agency for International Development.
Food Insecurity
Since then, food aid from abroad, an absence of large-scale natural catastrophes and a 2005 harvest that was the biggest in 10 years have kept North Korea from the massive starvation that’s taken place elsewhere, including Niger, says Richard Ragan, North Korea director for the United Nations World Food Program.
Still, “the country faces chronic food insecurity,” Ragan says. “One of the things that happened with the food shortages is that marginal lands became less controlled. You see people trying to farm on some of the most inhospitable plots of land you could imagine.”
In October, steep, unterraced hillsides were plowed outside Pyongyang. The crops can then wash down, rocks and all, during rainstorms, harming water supplies and damaging farmland – fertility.
A second nuclear weapons crisis boiled up in 2002 when the U.S. accused the North of conducting a secret uranium enrichment program — to replace a plutonium program that it had frozen as part of a settlement of the earlier crisis.
Economic Rules
That same year, the regime proceeded with what then Prime Minister Hong Song Nam described as dramatic new economic measures, which helped bring arbitrarily set prices and foreign exchange rates closer to those prevailing on the black market.
The North Korean won consequently dropped to 150 won to the dollar in December 2002 from 2.15 to the dollar a year earlier. The official rate is currently about 170 won, while on the black market, one dollar can bring about 2,000 won.
The government also introduced pay incentives aimed at boosting worker productivity. The system is in operation at enterprises such as the Pyongyang Embroidery Institute, where some 400 women stitch elaborate pictures for framing and sale.
Employees who don’t perform up to expectations aren’t fired; they’re denied raises, says spokeswoman Woo Kum Suk. Unable to live on their minuscule basic salary, equivalent at black market rates to something over a dollar a month, non-performers eventually quit and go elsewhere, Woo says. Good workers can see their salaries raised as much as fivefold.
Consumers
“In my opinion, it’s good to have this system,” she says. “Although the government supplies things to us, sometimes there’s something more we want to buy.”
North Korea has some way to go before many investors rush in. According to a UN report, net investment inflow for 2003 — the most recent year for which statistics are available — was a negative figure: minus $5 million.
Currently the country is constructing a new special economic zone at Kaesong, just north of the South Korean border, where several small companies from the South already employ North Koreans to make clothing, footwear and household goods. Authorities declined to let Western reporters visit it, permitting only a glimpse from a highway bridge a mile away.
Those who are investing are taking a long-term view. Singaporean entrepreneur Richard Savage was looking at least five years into the future in 2001, when he formed a joint venture tree plantation with the Ministry of Foreign Trade. The company, Evergreen Kormax Paulownia Ltd., is 30 percent-owned by the government, which has assigned Savage 20,000 hectares (49,000 acres) on a 50-year lease with an option to extend for 20 more.
Timber Business
Savage, 58, says he, family members, friends and a few other investors have put $3 million into the project so far. Savage says he hopes that by the time the paulownia trees mature — they grow as fast as 7 centimeters (2.85 inches) a day on his farm, and some may be ready for harvesting five years after planting — he’ll be able to sell the wood in a unified Korean market.
When the Northern economy takes off, the first beneficiary will be the building industry, he says. “That’s why I’m in timber,” he says, adding that his fallback plan is to sell the wood to China, Japan and South Korea.
It’s not the first venture in North Korea for Savage, who wears a cowboy hat and whose e-mail moniker is WildRichSavage. In 1994, he introduced North Korean officials to Loxley Pcl, a Thai telecommunications company. In 1995, an affiliate formed for the purpose, Loxley Pacific Co., signed a joint venture agreement with North Korea’s post and telecommunications ministry to create modern telecommunications in the Rajin-Sonbong special economic zone. The venture earns about $1 million a year, Loxley Pacific Chief Financial Officer C.C. Kuei, 56, says.
Mining for Gold
North Korea’s 1992 Foreign Investment Law guaranteed that foreign investors’ shares of profits could be repatriated, a promise that’s now being tested by Kumsan Joint Venture Co., a gold mining concern that’s half owned by a Singapore-led group of Asian investors and half owned by Hungsong Economic Group, a large trading, mining and manufacturing group in Pyongyang that’s controlled by North Korea’s military.
Roger Barrett, a Beijing-based British consultant, has helped arrange financing and technology for Kumsan. Barrett, 50, introduced Kumsan to the foreign investors, whom he declined to identify.
The company used its investment to buy secondhand mining equipment from Australia in 2004 for the venture’s mine 2,000 meters (6,562 feet) above sea level near the city of Hamhung. In the first year the new equipment was used, Barrett says, the mine produced about 100 kilograms (220 pounds) of gold, half of which the foreign investors took out of the country. He says doing business with North Koreans has proved to be absolutely normal. “It’s working very well,” he says.
Foreign-Run Bank
The business environment in North Korea is surprisingly welcoming, says Nigel Cowie, 43, a former HSBC Holdings Plc banker who was hired a decade ago by Peregrine Investment Holdings Ltd. to start North Korea’s only foreign-run bank.
When Peregrine collapsed in 1998, Cowie and the North Korean joint venture partner kept the local unit operating. He and three other investors bought Peregrine’s 70 percent stake in it from the firm’s liquidators in 2000. Cowie, who’s general manager of what’s now called Daedong Credit Bank, says the bank has about $10 million in assets and has only foreigners as customers, mostly Chinese, Japanese and Western individuals and institutions. Only North Korean-owned banks can do business with state enterprises and North Korean individuals.
Better Living Conditions
Living conditions for expatriates have improved significantly in the past three or four years, Cowie says over a meal of Korean barbecue in the capital’s Koryo Hotel. “For me, personally, it’s things like creature comforts, more shops, Internet, e-mail,” he says. While the Internet is available to foreigners, it is forbidden to most North Koreans.
Cowie says his biggest challenge at the bank comes from outside North Korea. In September, the U.S. Treasury Department barred U.S. financial institutions from dealing with a Macau bank, Banco Delta Asia, that it said had been “a willing pawn” in corrupt North Korean activities and represented a risk for money laundering and other financial crimes.
The bank and North Korea both denied the charges, but the Macau government took over the bank and announced it would provide no services to North Korea in the future. Cowie says the action tied up a big chunk of Daedong Credit Bank’s customers’ assets because Banco Delta Asia had been a main correspondent bank for North Korean banks.
The Treasury Department in October broadened its dragnet by ordering a freeze of the assets, wherever in the world the U.S. could assert its jurisdiction, of eight North Korean companies it suspected of involvement in proliferating weapons of mass destruction.
`WMD Trafficking’
The department explained its action in an Oct. 21 statement on its Web site: “The designations announced today are part of the ongoing interagency effort by the United States Government to combat WMD trafficking by blocking the property of entities and individuals that engage in proliferation activities and their support networks.”
North Korea sought to connect the Treasury actions to Washington’s position in the six-party talks. The country’s Korean Central News Agency, using the acronym for the Democratic People’s Republic of Korea, said on Dec. 2 that “lifting the financial sanctions against the DPRK is essential for creating an atmosphere for implementing the joint statement and a prerequisite to the progress of the six-party talks.”
Assistant Secretary of State Christopher Hill, the chief U.S. envoy to the talks, had said in a Nov. 11 press conference that the asset freeze wasn’t directly related to the talks.
Money Laundering Banned
Cowie says he doubts the U.S. action was intended to harm Daedong, which had already issued a manual prohibiting money laundering. He says he fears such U.S. actions could damp investor enthusiasm for North Korea. “It can cause the people doing legitimate business to just give up,” he says.
Cowie isn’t packing up to leave, though. Neither is Felix Abt, a Swiss native who heads a new European Business Association in Pyongyang. “I am very busy with visiting foreign business delegations,” Abt, 50, says. “Take it as a sign that the economy is developing and that more foreign business activities are under way.”
Outsiders’ investment on capitalism’s farthest frontier is gradually bringing benefits to North Koreans, too, says Savage, the tree farmer. “I can’t convert the whole country, but for the people who work for me, I’m giving them a better standard of living,” he says. “Slowly, people will prefer not to work for the government.”
If Savage and his fellow pioneers have their way, it’s only a matter of time before capitalism takes root in North Korea.
Minerals, railways draw China to North Korea
Friday, November 18th, 2005From the Asia Times:
By Michael Rank
11/18/2005
Chinese companies are venturing into North Korea, and both countries hope to reap the rewards. North Korea’s heavy industry is in a desperate state, but Pyongyang is hoping that Chinese investment will come to its rescue, while China sees the North as a convenient source of minerals, from coal to gold.
China’s increasing investment also means that North Korea is casting off its rigid juche, or self-sufficiency, policy and overcoming its deep historical suspicion of its giant northern neighbor.
Border trade in consumer items from televisions to beer has been booming since the 1990s, but now the focus is turning to the industrial sector. Deals are being reached on mines, railways and leasing a North Korean port to a Chinese company, but North Korea is notoriously secretive and few details have been published outside China. The deals include an agreement to “completely open” North Korea’s railways to a Hong Kong millionaire, as well as moves to revive ailing coal, iron and gold mines.
Tumen-Chongjin rail link rumored
Hong Kong businessman Qian Haomin is reported to have reached a US$3 billion deal with North Korea that also involves the Chinese Railways Ministry building a new rail link between the Chinese border city of Tumen and the North Korean port of Chongjin. The agreement marks an end to long-running tension between the Chinese and North Korean state railway authorities over North Korea’s retention of up to 2,000 Chinese goods wagons and reluctance to repay loans.
The Hong Kong news magazine Yazhou Zhoukan recently reported that these issues had been resolved and that Qian’s grandly named company Hong Kong International has agreed to provide the North Koreans with 500 to 1,000 freight wagons. Qian told the magazine that “after six months of effort, there are now hopes of solving the railway transport bottleneck between China and North Korea”, and this would help to integrate the economy of the entire northeast Asian region.
Qian’s ambitions are not limited to railways. Not only has he expressed interest in investing in a North Korean coal mine, but Yazhou Zhoukan also reported that he hopes to set up a special economic zone in the North Korean border city of Sinuiju. He has clearly not been deterred by the unhappy case of Yang Bin, a Dutch-Chinese multi-millionaire who was made head of a similar development zone in 2002. Before Yang could take up his post, he was arrested by the Chinese authorities for tax evasion and other economic crimes and jailed for 18 years.
Qian, aged 41, is originally from the southern Chinese province of Guangdong and moved to Hong Kong in 1993. He has been involved in North Korea since the early 1990s, and has apparently established a fruitful relationship with Prime Minister Pak Pong-ju. He has said that “to invest in North Korea has been my dream” because three of his uncles fought in the Korean war; one was killed and one was seriously wounded. The Hong Kong investor has signed a plastics, tire and battery recycling agreement with North Korea and has expressed interest in investing in the country’s largest anthracite coal mine, which now produces only 1 million tons a year, compared with 3 million tons at its peak.
Tonghua Steel looks North
Meanwhile, state-owned Tonghua Steel or Tonggang, based in the northeastern city of Tonghua, expects to sign a 7 billion yuan ($865 million), 50-year exploration rights deal with the Musan iron ore mine, said to be North Korea’s largest iron deposit. Tonggang, Jilin province’s largest steelmaker, hopes to receive 10 million tons of iron ore a year from Musan as part of its plans to increase steel production from a projected 5.5 million tons in 2007 to 10 million tons in 2010.
The planned deal reflects China’s immense and growing appetite for steel. Although the country already produces 30% of global output, it is heavily reliant on imports and is concerned about rising prices. A Jilin provincial trade official said importing iron ore from North Korea was attractive because of low transport costs, which would increase Tonghua’s competitiveness.
Tonggang officials say they expect the deal to be signed soon, and that of the 7 billion yuan (US$866.1 million) pledged, 2 billion yuan will be invested in transport and power lines. Company president An Fengcheng said agreement had already been reached with China Development Bank on 800 million yuan worth of soft loans and 1.6 billion yuan of hard loans, while “the remaining investment will come in in stages”.
Rajin deal to give China Sea of Japan access
China’s export boom is one of the great economic success stories of the past 25 years, but it is constrained by a lack of suitable ports. In particular, the country lacks a port on the Sea of Japan, but after attempted deals with Russia came to nought, the inland Chinese border city of Hunchun has reached an agreement for a 50-year lease with the nearby North Korean port of Rajin.
The ceding of Rajin, an ice-free port with a handling capacity of 3 million tons a year, will give access to the sea to inland areas of northeast China which, at present, must send freight long distances by rail to the port of Dalian on the Bohai gulf. The agreement also provides for the construction of a 5-10 square kilometer industrial zone and a 67 kilometer highway, and envisages that the Rajin area will become a processing zone for Chinese goods which will then be re-exported to southeast China.
A Hunchun economic official stressed that the leasing of the port is “a business deal and not a government deal”. The South China Morning Post reported from Hunchun that the man behind the deal is Fan Yingsheng, a property developer from Hunan province who put up half the initial capital investment of 60 million euros (US$70 million). The sum could not be denominated in dollars for political reasons.
The paper quoted the United Nations Development Program as saying this sum would only be enough to build the road to Rajin, and far more would be needed to rejuvenate the port. The deadline for final agreement is December 30, 2006, and it remains to be seen if a final deal will be reached in time.
An unusually frank North Korean trade official noted the possible pitfalls as well as the advantages of such deals. Kim Myong-chol, head of the Korean Council for the Promotion of Foreign Trade, said the deals would have to involve importing “highly advanced technology and equipment”, and added: “These agreements are not easy to put into actual practice and can run into many problems so far as funding and bilateral cooperation are concerned.”
“Because the amount of money involved in these cooperative projects is quite large and [North] Korea will be investing ports, roads, etc, there are rather great risks in such investment, and in addition because the domestic Korean economy and its policies, laws and regulations, etc, are unclear, many problems are likely to arise in carrying out these plans,” Kim told a Chinese website.
Coal and gold
Such concerns may have been in the mind of the president of China Minmetals Corp, Zhou Zhongshu, when he signed “an agreement on setting up a joint venture in the coal sector of the DPRK” [North Korea]. The deal was signed in October when Chinese deputy premier Wu Yi visited Pyongyang, and is said to be the first of its kind. North Korean Vice Minister for Foreign Trade Ri Ryong-nam urged the Chinese side to “provide advanced technology and set up a good model for other joint ventures and cooperation between the two countries”.
North Korea also has substantial gold deposits, and a Chinese company plans to invest in a “semi-paralyzed” North Korean gold mine and refine the metal at its base in Zhaoyuan in Shandong province. Guoda Gold Co Ltd reached a preliminary agreement last year with Sangnongsan gold mine, which is said to have gold deposits totaling at least 150 tons.
Guoda deputy manager Lin Deming said his company was attracted to North Korea because of low labor, energy and transport costs as well as the “highly favorable” investment terms offered, but gave no details. Chinese investment in North Korea is certainly increasing, but final agreement on a number of deals has not yet been reached, and political factors such as uncertainty over Pyongyang’s nuclear weapons program may well discourage Chinese companies from moving too fast.
Michael Rank is a former Reuters correspondent in China, now working in London.
