Minerals, railways draw China to
North Korea By Michael Rank
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.
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