Chinese company vents venom on
North Korea By Michael Rank
China likes to claim that its relations
with North Korea are "as close and lips and teeth"
but those teeth are infected with a poisonous
abscess so far as one Chinese company is
concerned. In an extraordinary attack, a
Chinese mining company has accused the North
Koreans of tearing up a multi-million-dollar deal,
intimidating its staff, imposing outrageous extra
charges and cutting off its power and water, as
well as of corruption and demanding prostitutes
whenever their North Korean counterparts visited
China.
"Xiyang Group's investment in North
Korea was a nightmare, and we were taking our
lives in our hands when we entered the tiger's
lair," the company says.
Xiyang Group, based in the northeastern
province of Liaoning, says it was the biggest
single Chinese investor in North Korea, having in
2011 signed a 240 million yuan (US$38 million)
deal to form a joint venture iron mine that was to
produce 500,000 tonnes of iron powder a year.
A few months after the contract was
signed, the North Koreans made a series of
extraordinary demands that led to the Chinese
walking out in fury and to launching what must
surely be the fiercest public attack they have
ever made on their supposed close ally. [1]
The company aims much of its invective at
a particular North Korean official, who, it says,
is "the leader of the criminal gang who deceived
Xiyang, this great plotter and fraudster ..." The
official, Ri Seong-kyu, was the North Korean
side's faren, or legal representative, in
the deal and he is blamed for everything that went
wrong.
When negotiations began in 2006 the
plan was for the Chinese company to take a 75%
stake in the venture, but it turned out that North
Korean policy stipulated that a foreign firm could
own no more than a 70% stake in a natural
resources company such as a mine.
Xiyang
says Ri, "violating the North Korean national
investment law", nevertheless signed a joint
venture contract in which the Chinese side took a
75% stake, "forging an investment certification
document in order to gain Xiyang's confidence".
He later told the Chinese company that the
document was null and void because of the
stipulation that the North Korean side must have
at least a 30% stake, but Xiyang did not realise
his deception until September 2011.
Xiyang
says it first became interested in investing in
North Korea in 2005 in response to the Chinese
government's call for Chinese companies to
"venture out" and invest abroad, "but we had heard
that North Koreans do not keep to their word,
national laws are not strong and it is easy to be
cheated, so we were extremely cautious in our
investigations."
It also notes the secrecy
that pervades business dealings in North Korea,
which prevented Xiyang from sending ore samples
back to China for testing, but despite all this
the company "took the great risk of investing".
"North Korea's system of doing business is
[based on] government departments' secrecy in
relation to foreigners, and they do not allow
foreigners to visit government departments to do
business," the online report complains.
It
says there were "all kinds of unimaginable serious
problems" in reaching an agreement, but after
years of negotiations production finally began in
April 2011. However, the North Koreans
unilaterally annulled the agreement last February,
when they "used violent methods" against Xiyang
staff, cutting off their water, electricity and
communications and smashing the windows of their
living quarters.
At 2am on March 3, a
group of 20 armed police and security officials
led by a North Korean company official woke up the
sleeping Chinese and told them the North Korean
premier had annulled the deal and they were to
leave the country immediately. Ten senior
Xiyang employees, who seem to have been the only
ones remaining in North Korea out of over 100
originally sent, were "treated as enemies", put on
a bus and deported via the border city of Sinuiju.
The statement includes a highly personal
attack on Ri, who, it says, has a huge paunch and
is "North Korea's number one fat man", weighing
108 kilograms. "Everybody knows North Korea is
suffering grain shortages and ordinary people do
not have enough to eat, so North Koreans are quite
thin but Ri Seong-kyu's unusual fatness fully
reveals what a luxurious life he leads ... When
people like Ri Seong-kyu go to China they let down
their country and themselves and make all kinds of
demands, for money, gifts, food, drink, girls ..."
Xiyang said it had paid over US$800,000 in
kickbacks to corrupt North Korean officials,
including $80,0000 for a Hummer for Ri in 2008 and
$100,000 in 2009 for a construction project in
which he was involved in South Hwanghae province.
In addition, Ri and his cronies would demand gifts
of laptops, cellphones and vast amounts of booze,
and to be provided with masseuses.
"Sometimes the Chinese would not provide
any girls, so they would get them themselves and
put it on their room bill," expecting Xiyang to
pay for all their personal expenses, bringing the
bill to over 200,000 yuan per person.
This
was not all - they would demand a receipt for
their expenses that had been paid for by Xiyang,
so they could claim the same costs when they
returned to North Korea, according to the Xiyang
statement.
Xiyang officials, on the other
hand, had to pay all their own expenses in North
Korea, were only allowed to eat in certain
restaurants and were followed 24 hours a day by
security officials. Even when Ri invited the
president of Xiyang to his home, his host charged
$2,000 for the privilege.
The report says
the crunch came in September 2011 when the North
Koreans made 16 demands that violated the terms of
the contract, including a 4-10% sales levy, a one
euro (US$0.17) per square metre per year rent
charge, a hike in electricity prices and a charge
of one euro per cubic metre of sea water consumed.
They also banned the company from
releasing waste water, or even clean water, into
the sea, which "amounted to the North Koreans
forcibly halting production".
The most
serious act by the North Koreans was a ban on
sales, the document states, which was clearly
aimed at ensuring an end to the joint venture. "Ri
Seong-kyu claimed all these [regulations] were
included in North Korea's national joint venture
law, and we could not sell the 30,000 tonnes of
iron powder that had been produced. In these
circumstances, if Xiyang had carried on investing
and manufacturing [in North Korea], we would have
been the biggest fools in the world."
Many
of Xiyang's complaints will sound all too familiar
to anyone who has visited North Korea. The
document tells how Xiyang staff were at first
banned from buying food in so-called free markets.
After much pleading the authorities finally agreed
to this, but each person had to be accompanied by
two minders and the route had to be approved by
the security police.
Although the mine was
only 500 meters from the sea, staff were banned
from taking strolls along the shore.
Quite
why the North Koreans acted with such prejudice
against Xiyang isn't clear, but part of the reason
may lie in the location of the mine. It is in
Ongjin county on the west coast, a highly
sensitive area ever since this small peninsula
ended up in North Korea after the Korean war even
though it lies below the 38th Parallel. (It is
also close to the port of Haeju, from where the
iron was to have been exported).
The
Chinese government may wish to dismiss this as a
spat between a little known Chinese company and a
single corrupt North Korean official, but it has
brought into the open the deep suspicion that
exists between the two countries.
The
Chinese have long felt unable to trust the North
Koreans with their xenophobic, quasi-Maoist
personality cult, while the North Koreans are
equally suspicious of the emerging superpower on
their doorstep eagerly eyeing the smaller
country's natural resources.
Change may
now be in the air, and the more open leadership
style of North Korea's young Kim Jong-eun has
sparked speculation of economic reform and a fresh
approach to foreign investment in his country, but
horror stories such as this may indicate Kim's
style may be just that - all style and no
substance.
Michael Rank is a
London-based journalist and translator who has
written extensively on North Korea for Asia Times
Online. He graduated in Chinese from Cambridge
University in 1972 and is a former Reuters
correspondent in Beijing. He visited Rason in
North Korea in 2010.
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