North Korea dissolved a well-known state-run company in charge of attracting foreign investment due to its unsatisfactory performance, South Korea’s Unification Ministry said Friday.
“Daepung International Investment Group seems to have been disbanded, probably due to poor performance,” a ministry official said in a briefing on governmental and personnel changes taken under the Kim Jong-un regime over the past year.
The country also broke up another extra-governmental organization in charge of trade promotion and foreign investment with its work believed to have been reassigned to the government’s Commission for Joint Venture and Investment, according to the official.
Daepung Group was established at the instruction of the North’s highest political body, the National Defense Commission, in January 2010 as a means to attract foreign investment.
The group oversaw the now-suspended joint tourist program in Mount Kumgang on the eastern coast of North Korea.
The cross-border program had served as a cash cow for the North before Seoul halted it in 2008 following the shooting death of a South Korean tourist at the resort.
The Ministry of Unification’s recent monthly report on ‘Trends on Inter-Korean Exchanges” included an examination of the last five years of the Lee Myung-bak administration’s (January 2008 to November 2012) people-to-people exchanges and economic cooperation between North and South Korea.
Over the past five years, total inter-Korean trade reached 8.94 billion USD, a growth of 58 percent against the previous Roh Moo-hyun administration’s 5.62 billion USD. This increase can be attributed to the steady growth of the Kaesong Industrial Complex (KIC). The KIC recorded a total trade volume of 6.695 billion USD under the incumbent administration, which is nearly a seven-fold increase compared to the previous Roh administration’s record of 957 million USD. Considering its importance, the KIC was exempt from South Korea’s May 24 (2010) sanctions imposed against the North.
During the Lee government, 108 companies were authorized for inter-Korean cooperation projects (including the Kaesong Industrial Complex). This represents a drastic drop from the previous government’s 370 companies. Under Lee, the number of cultural exchanges and related businesses that were approved were a mere 5, compared to the former administration’s record of 121.
Combined government and private sector assistance to North Korea totaled 256.3 billion KRW, only one fifth of what was recorded during the Roh administration (i.e., 1.27 trillion KRW). While the current government had more private sector support, the previous government showed more government support.
Over the 5 years of the Lee Myung-bak administration, 664,000 people traveled across the North-South border, which is significantly higher than the number (i.e., 390,002 people) recorded during the Roh administration. However, the majority were government officials, mainly those involved with the KIC.
The number of North Korean defectors that entered South Korea during the Lee administration’s term in office was 724 people, a significant drop from the 4,571 people during the 5-year term of the previous administration. Last year, no defectors entered South Korea — the first “zero-entry” in 14 years (that is, since 1998.
In terms of cross-border vehicle traffic, vehicles traveled across the border 840,009 times, an increase from the previous administration’s 490,000 visits. However, the quantity of goods transported dropped 40 percent from the previous, at 1.39 million tons.
In particular, after the ROKS Cheonan incident on March 2010, people-to-people exchanges and economic cooperation were completely halted due to the May 24 (2010) measures. The amount of goods transported was also largely reduced.
As far as cross-border rail is concerned, the Gyeongui Line (connecting South Korea to the KIC) and the Donghae Line (connecting the South to Mount Kumgang) were actively utilized during the Roh administration; but under the incumbent administration, only the Gyeongui Line was utilized.
During the Roh administration, the air traffic recorded 589 trips (42,495 people), but during the Lee government reached only 77 (3,812 people).
The number of separated families members reunited during the last five years was 1,774 (888 people in 2009 and 886 people in 2010). This is only a tenth of the 14,600 family members reunited during the former Roh Moo-hyun government.
UPDATE 1: Hat tip to a reader in the commentsection…Mr. Park was given honorary citizenship to the city of Pyongyang, not to the DPRK. This is the DPRK equivalent of getting the “key to the city”.
The head of inter-Korean automaker Pyeonghwa Motors said Tuesday that he was made an honorary citizen of Pyongyang late last year to reflect his contribution to North Korea’s development.
In an interview with Yonhap News Agency, Park Sang-kwon said he received the citizenship at the Mansudae Assembly Hall in the North Korean capital on Dec. 18.
Park has led the carmaker that started off as a joint venture between South Korea’s Tongil Group, run by the Unification Church, and North Korea. Production began in 2002, with the company producing about 2,000 vehicles every year.
He said his citizenship has a serial number of 002 and has an inscription saying that the honor is being bestowed because of his contribution to the fatherland and the Korean people. He is the first foreign national to have received the honor under the communist country’s new leader Kim Jong-un.
Kim Chin-kyung, the Korean-American president of Pyongyang University of Science and Technology was the first to receive an honorary citizenship in Aug. 2011 by late North Korean leader Kim Jong-il.
“The reason why they gave me the citizenship reflects recognition for the trust I have shown them and may be a sign that they want me to more freely engage in business activities,” he said. Park claimed that the citizenship can be seen as a sign that the North will allow him to start a new business in the country.
He then said that the reason why Tongil decided to turn over management of the carmaker last November was so it could focus on a wholly-owned business operation in the country. Last year, the business group created by late Rev. Moon Sun-myung also agreed to hand over control of the Pothonggang Hotel in Pyongyang.
The executive said he had asked the North to approve such a step.
“Pyeonghwa Motors has been generating profit for the past five years,” Park said. The businessman said that in the future, he wants to engage in the distribution of household necessities in North Korea, and in particular to Pyongyang.
He said there is a need to show that a wholly-owned (outside-invested) company that is not tied to a joint venture project with a North Korean partner can succeed in the country, which can act as an incentive for other foreign companies to invest.
He pointed out that Chinese companies that invested in the North are generally those that have not done well at home. He said that successful South Korean, Japanese and U.S. companies need to engage in business activities in the North.
“If 200 competitive South Korean companies operate in the North, there would be no reason for inter-Korean tensions, and it can actually help push forward the unification process,” he said.
Park, meanwhile, said the North is looking into the option of developing a ski resort near the 768 meter high Masik pass near the city of Wonsan on the east coast.
He said that United Front Department of the ruling Workers’ Party of Korea mentioned the development plan in December and claimed that North Korean leader Kim Jong-un gave the order personally. Kim has been running the country since the sudden death of his father Kim Jong-il in Dec. 2011.
“The North seems to want to develop a small ski resort first and build this up depending on demand,” he said.
The businessman added that Pyongyang wanted to transform Wonsan into a special tourist zone and is interested in using a military airfield near the city to accept civilian flights carrying tourists. Wonsan is famous for its beaches and if a ski resort is opened on Masik pass, it could attract tourists year round.
Park claimed Kim Jong-un has gained confidence in managing the country in the last year and may move to increase investments into the tourism sector.
ORIGINAL POST (2012-12-3): According to Yonhap (via Korea Times):
The source said, “As far as I know, Pyeonghwa Motors is seeking to sell its factory in Nampo for about US$20 million in order to end its auto business.”
…
“The (South Korean) president of the auto firm appears to be eyeing the distribution sector” in North Korea, an official at the foundation said, adding the president may move to a new industry after liquidating the auto business. “But nothing has been determined so far,” the official said.
Pyeonghwa Motors president Park Sang-Kwon is widely expected to hold discussions with the North over the business shift during a North Korean visit scheduled for mid-December, to mark the first anniversary of the death of late North Korean leader Kim Jong-il, who died on Dec. 17.
The North Korean government is a 30% partner in the car manufacturer.
A unit from the church’s business arm spent about $55 million to build the Pyeonghwa factory in Nampo, a port city on North Korea’s west coast about an hour or so outside of the capital Pyongyang. After the factory was completed in 2002, workers there completed partially built cars, in a form called knockdown kits, that were imported from manufacturers in Italy and China.
But the company appears to have rarely been profitable. In 2009, the firm earned about $700,000 from the sale of 650 cars. About $500,000 of that was remitted to its parent operation in South Korea. The South Korean government noted then that it was the first time a South Korea-based company repatriated profits from North Korea.
The Pyeonghwa Motors web page does not contain any information on this development. You can view the web page here (english). The last published press release was on 2011-1-11:
The web page does have production and sales data (if you choose to believe it):
No revenue or profit numbers are given on the web page, but it does mention that the factory’s capacity is 10,000 units per year. If these numbers are correct, in 2011 (the most productive year in terms of output) the factory was only running at approximately 19% capacity.
The Pyeonghwa Motors web page also offers a grand vision of the factory’s future (100,000 unit capacity):
According to the MOU, the average monthly wage at KIC has reached $128.3 as of the first half of 2012. This marks a steady increase from $68.1 in 2006, $71.0 in 2007, $74.1 in 2008, $80.3 in 2009, $93.7 in 2010, $109.3 in 2011. One source of the increase is a built-in escalator clause on the minimum wage payment, which started at $50 and has increased 5% a year over the last six years. But that only gets you to about $67 for this year.
The remainder of the observed increase is apparently the result of additional payments for overtime, which has been rising dramatically. Average weekly working hours were already 55.2 hours in 2006 but now stand at 61.6 in 2012 (up to July). If we knew that these additional hours were the result of the free choices of hard-working, upwardly mobile workers we would still probably find it a little excessive. But of course, the advantages of working in Kaesong are such that North Korean authorities have absolute power to hire and fire at will. There is no way of knowing whether workers would choose this regimen if they were organized or not.
But the story is much worse, of course, because we don’t ultimately know what share of these wage payments actually end up in the hands of the workers in the complex. Wages are paid in U.S. dollars to the North Korean authorities by the South Korean companies operating in the complex. 45% of the wage bill–15% for “social security” and 30% for “socio-cultural policy entitlements”–flows into the regime’s coffer, while the remaining 55% is supposedly given to the workers in either DPRK won or coupons.
But not so fast. A crucial question is the exchange rate at which workers are paid and the value of the “coupons” they receive. We hardly need to state the obvious: North Korean workers are not getting paid the won equivalent of their dollar salaries at anything resembling the shadow-market exchange rate that reflects actual scarcities. At least in the Yonhap report, the MOU makes no mention of what the real dollar equivalent of won payments are using a realistic exchange rate. But given the country’s high inflation and rapid depreciation of the exchange rate—see my colleague Marc Noland on this—the dollar value of what North Korean workers actually receive could be only a small fraction—even a very small fraction—of the stated dollar wage .
Why has Kaesong stayed open? The answer lies in a pretty straightforward political economy calculus on both sides. For the South, Kaesong is industrial policy for labor-intensive firms. For North Korea, it is a cash cow that even hardliners have been loath to push the way of the Mt. Kumgang project. Since 2004, total wage payments for North Korean workers in the KIC has totaled $245.7 million, rising from $380,000 in 2004 (the first year of operation) to $61.76 million in 2011 and $45.93 million in the first half of 2012. For Pyongyang, even hardliners can see that this is a no-brainer.
Recently, eight companies in the Kaesong Industrial Complex (KIC) informed that they received tax collection notices, a unilateral decision made by the North Koreans.
The Ministry of Unification and KIC reported that out of the 123 companies, 8 companies were informed by the North Korean authorities to pay about 160,000 USD in total in taxes.
Two companies out of the eight notified companies already paid close to 20,000 USD to the North Korean tax authorities.
On top of taxation, 21 companies were notified to submit additional tax documents. This may be to collect additional information for future tax collection purposes.
The tax authorities are also requiring companies to submit documents related to show proof of purchase of raw materials, and submit cost analysis documents and a copy of bank statements showing the history transactions.
Last August, the Central Special Direct General Bureau (CSDGB) notified the Kaesong Industrial District Management Committee of new tax bylaws, which enforces a fine up to 200 times the amount of accounting manipulation and abolish the retroactive taxation system while increasing the number of documents for submission. Furthermore, the North is threatening to restrict access to the KIC, if companies fail to pay owed taxes or do not submit requested documents.
In addition to imposing fines for tax frauds, new tax bylaws demanded by the CSDGB included enforcement of additional taxes in the name of corporate income tax, sales tax, and other taxes.
The unilateral decision by the CSDGB to amend bylaws is a violation of Kaesong Industrial District Law, which requires any revision of the laws must be negotiated between the North and the South. Another problematic issue is that tax imposed on the companies is based on North Korea’s own estimation rather than tax reports submitted by the companies of the KIC.
For the first time last year, tenant companies in the KIC recorded an average operating profit of 56 million KRW, finally operating in the black after years in deficit.
UPDATE 2 (2012-10-18):Yonhap and the Korean Times pass along details of the tax increases in the Kaesong Zone:
North Korea has unilaterally imposed hefty taxes on South Korean firms operating in the joint Gaeseong inter-Korean industrial complex in the North while employees there are demanding the firms provide more severance pay, a Seoul government official said Thursday.
“The North imposed the taxes including corporate income and business taxes on some of the companies operating in the Gaeseong complex in accordance with a new tax enforcement regulation (enacted) and delivered by the North last August,” the official said.
The imposed taxes were unilaterally drawn based on the North’s estimation of business activities by the South Korean firms, according to the official. About 10-20 firms out of the total 123 South Korean firms operating in the complex located in the North Korean border city of Gaeseong were reportedly slapped with the heavy taxes.
The amount of taxes imposed and whether the firms paid them are not clearly known, but some of the companies are said to have paid the taxes amid increasing pressure from the North.
The North unilaterally issued the new tax regulations in August, which also allow the country to levy heavy fines if a South Korean firm is found to have accounting irregularities. The regulations allow fines as heavy as 200 times the amount involved in potential accounting fraud by South Korean firms.
As part of efforts to extract taxes, the North is reportedly threatening a ban on the movement of goods and people in and out of the complex if the taxes are not paid, other sources said.
South Korean firms there are protesting the levies, saying “they may thwart normal corporate activities,” but the North may not budge on the decision, they said.
In addition, North Korean employees at the Gaeseong complex are demanding that South Korean firms provide severance pay even if employees voluntarily quit.
Under the current labor terms in Kaesong, South Korean firms are required to offer severance pay only when North Korean employees are involuntarily laid off after at least one full year of employment.
As of end-August, a total of 52,881 North Korean workers were employed by South Korean firms operating in the Gaeseong complex. About 500 to 1,000 employees leave South Korean employers every year, citing health reasons or marriage.
Meanwhile, the South Korean firms continued to register an annual net loss from their operations in the Kaesong complex, the Unification Ministry handling inter-Korean issues said. The combined net loss of 119 firms out of the total 123 stood at 14 million won ($12,681) in 2011, decreasing from net losses of 134 million won and 272 million recorded in 2010 and 2009, respectively, according to the ministry.
Nearly 37 percent of the 119 firms surveyed by the ministry said they feel the North’s interference with their corporate activities is severe, the ministry said. Inability in hiring or firing North Korean workers is the most frequently cited complaint among the 119 firms polled, followed by difficulties in Internet connection and a shortage of North Korean labor.
Despite the global economic slowdown, more than 6,000 business representatives from 20 countries signed agreements on more than 200 cooperative projects. Some 72 of the largest projects have a total combined value of $1.26 billion.
…
During the 11th Five-Year Plan period (2006-2010), total trade value between Dandong and DPRK amounted to $3 billion. Imports and exports between Dandong and the DPRK reached $1.86 billion in 2011.
So far, trade between Dandong and DPRK accounts for 40 percent of total China-DPRK trade, and the volume of the cross-border cargo trade via Dandong port makes up 80 percent of the total Sino-DPRK trade volume.
UPDATE 4 (2012-10-16):Xinhua reports on the closing of the expo:
The five-day 2012 China-DPRK Economic, Trade, Culture and Tourism Expo, held in the border city of Dandong, concluded on Tuesday with 72 agreements of cooperation intent signed. They have a combined value of 1.26 billion US dollars.
Pan Shuang, vice mayor of Dandong, said more than 6,000 Chinese and overseas people from over 20 countries and regions exhibited at and attended the expo. There were talks on 200 projects.
He said the projects related to industries ranging from aquaculture, clothes manufacturing, chemical production, wind power generation equipment, iron steel production to hotel construction.
AT THE EXPO
At the exhibition, the DPRK delegation exhibited ginseng products, food specialties, hand-made Hanbok, a traditional Korean costume, as well as mining and machinery equipment.
Ri Yong Chol, sales manager of Korea Roksan General Trading Corp., which is a ginseng supplier, said “I came to look for Chinese friends and potential business partners. Our company is also seeking opportunities to set up a subsidiary in China to get better access to the Chinese market.”
A Korean girl wearing brightly-colored Hanbok and traditional ornaments was selling costumes. “Our factory can make 20 such hand-made Hanboks a day. The clothes are for important occasions with exquisite workmanship and high-quality material,” she said.
Liu Songyu, chairman of a Korean garment firm from Yanbian Korean Autonomous Prefecture of Jilin Province, was interested in the business.
“Chinese labor costs have been rising fast. In Yanbian, a garment-factory worker’s salary has risen to 2,000 yuan (319 US dollars) a month. While, if the company had a factory in DPRK, it would save a considerable amount on labor costs. I would give a serious thought to that,” he said.
Yanbian is a heavily Korean ethnic populated region in China, where people also wear Hanbok during important occasions.
Elsewhere, Huang Zijun, an authorized dealer of Total Petrochemcial, was overwhelmed to obtain 20 orders from the DPRK delegation during the expo.
“I felt their enthusiasm in promoting business at the expo. I believe the DPRK is a big market for petrochemical products like lubricating oil,” he said.
An economic, trade, culture and tourism expo jointly initiated by China and the Democratic People’s Republic of Korea (DPRK) opened Friday in the border city of Dandong in northeast China’s Liaoning Province.
A delegation of 500 members from the DPRK is attending the 2012 China-DPRK Economic, Trade, Culture and Tourism Expo, which is scheduled to run from Friday to Tuesday, the event’s organizers said.
Over 400 Chinese companies from 12 industries are also attending the expo.
With the theme of “friendship, cooperation and development,” the expo consists of commodity exhibitions, trade fairs, DPRK art performances, craftwork exhibitions, a border trip to the Yalu River and an exhibition for the tourism resources of the two countries.
Supported by the China Council for the Promotion of International Trade, the event is being organized by the Liaoning Provincial Government.
China is DPRK’s biggest trade partner. Statistics show that bilateral trade volume went up 62.4 percent year on year to 5.64 billion U.S. dollars last year.
A source from Dandong described the unusually vibrant scene to Daily NK yesterday, saying, “The North Korean authorities have mobilized companies from Pyongyang and from here in China to sell goods and pitch for joint venture opportunities. There are loads of people; it’s standing room only.”
The source added that North Korean companies attending the event are pushing very hard to attract investment; notably, by distributing their own promotional literature expounding upon the given company’s superior virtues and providing exact contact details for follow-up inquiries. It is not hard to find meetings continuing in local North Korean eateries, as the North Korean side tries to woo potential sources of capital.
Chinese companies are keen to hear about the joint venture opportunities available, the source also said; and with most of the larger enterprises from China’s three northeastern provinces sending representatives to Dandong for the event, which runs until the 16th, most of the city’s hotels are apparently full to bursting.
However, due to past and present cases of lip service being paid to contractual obligations by North Korean companies whose only goal has been to attract funding rather than build business, Chinese representatives are still very cautious about actually signing on the dotted line.
One such representative from a Dandong-based company with a 10-year history of doing business with North Korea pointed out to Daily NK, “We have seen countless examples of companies making contracts and then there being little contact between the partners thereafter. Unbelievably, one manager I tried some minerals business with last year just changed the name of the company and came back again this year.”
UPDATE 1 (2012-6-7): The expo appears to have been pushed back to October 2012. According to KBS:
North Korea and China will jointly hold a fair on economy, trade, culture and tourism in the Chinese border city of Dandong for five days from October 12th.
A Dandong-based newspaper reports that this will be the first comprehensive fair covering several fields that the two countries hold. The paper said the fair will exhibit products, offer trade consultations, hold cultural and art performances and introduce both nations’ tourist attractions.
Roughly 400 Chinese companies exporting to North Korea will participate in the event. About 100 North Korean companies and cultural troupes will partake.
Dandong is China’s largest base for trade with North Korea, with 70 percent of its trade with North Korea running through the border city.
Read the full story here:
N.Korea, China to Hold Joint Industrial Fair in October KBS
2012-6-7
ORIGINAL POST (2011-12-3): Dandong to host Sino-DPRK economic and cultural expo. According to Xinhua:
The northeastern Chinese city of Dandong, which borders the Democratic People’s Republic of Korea (DPRK), will host a Sino-DPRK economic, trade and cultural exposition in June next year, a local Chinese official said Saturday.
A series of activities, including a commodity fair, investment and trade talks, tourism exhibition and arts exhibition, will be staged during the exposition, said a spokesman with the Publicity Department of the Dandong Municipal Committee of the Communist Party of China.
The Phibada Opera Troupe of the DPRK, an artists group well known to Chinese people, will give performances during the event, he said.
Adam Cathcart took the time to send me this interesting link to the official Dandong web page. It contains some videos (in Chinese) in which local officials promote the changes they expect to come to this city as it transitions into a regional trade hub.
Below I have added some links to recent blog posts that a re related to Dandong:
UPDATE 43 (2015-6-17): Gazprom official claims pipeline not feasible. According to NK News:
The deputy CEO of Russia’s Gazprom told reporters that connecting South Korea to Russian gas supplies is economically attractive but politically infeasible on Tuesday.
The long-gestating pipeline project would extend through the DPRK and provide natural gas to energy-hungry South Korea.
But Alexander Medvedev, speaking from a press conference in Moscow yesterday, said the project was too difficult in the current climate.
“The level of communications, the level of cooperation is not that which would make it possible to speak of advancing to the feasibility study stage, let alone implementing a project to supply gas via North Korea.”
Despite the political hurdles, the project is still interesting from an economic standpoint.
“From the economic standpoint, this would probably be the most efficient option for supplying gas to Korea … There is demand for pipeline gas,” Medvedev added.
…
Despite the numerous roadblocks, the deputy CEO of the world’s largest gas producer remained hopeful that political changes could move the project forward.
“The opportunity remains all the same, but it depends on a resolution of the political issues between the DPRK and the Republic of Korea. There are certain positive signals, but there are negative signals too,” Medvedev said at the press conference.
Post 42 (2014-6-18): According to Leonid Petrov, “Russian GAZPROM postpones Trans-Korean gas pipeline construction project ‘due to unstable political situation in South Korea'”. Here is the source (in Russian).
Post 41 (2014-3-29): According to Yonhap, the Russians and the North Koreans held talks on a number of issues including the Kaesong Industrial Complex, Iron Silk Road, and the gas pipeline. No information on the pipeline was made public.
Post 40 (2013-11-13): The Russians and South Koreans most recently discussed the Russia – South Korea gas pipeline at a presidential meeting in Seoul. No decisions were made. Read more here.
Post 39 (2012-10-4): The Choson Ilbo reports that the pipeline talks are delayed because DPRK is asking for transit rates above the international norm:
A South Korean government source said talks have dragged on because the North is demanding a transit fee that is two to three times more than international rates.
Based on a method of calculation used by Ukraine — about $2 per 1,000 cubic meters of natural gas for 1 km of pipeline — a reasonable fee would be about US$150 million a year given the estimated amount of gas South Korea would import from Russia and the 700-800 km of the gas pipeline running through the North. But the North reportedly demanded $300-500 million a year.
“It’s likely that the North asked for such a high price in the first place to gain the upper hand in future talks,” the source added. “There have been no full-fledged talks yet. At the moment, Pyongyang, Seoul and Moscow are just trying to read each other’s minds.”
Post 38 (2012-2-27): The Daily NK reports on details being discussed in the pipeline talks:
The Republic of Korea Ambassador to Russia, former chief nuclear negotiator Wi Sung Lac, says there has been progress on a gas pipeline connecting Russia, North Korea and South Korea.
“At the moment it is at the stage of enterprises discussing commercial conditions, and I am aware that there has been progress. North Korea and Russia are also discussing issues of transit and transit fees via working-level consultations,” he explained to reporters on a visit to Seoul today.
Wi would not be drawn on what kind of progress has been achieved, saying, “It’s about commercial details and so is hard to explain, but it appears there has been progress on supply quantities and supply conditions.”
Post 37 (2012-2-20): Gazprom reports “progress” in talks with North Korean government. According to Bloomberg:
OAO Gazprom, Russia’s natural gas exporter, said it made progress in talks to supply Korea Gas Corp. (036460) through a pipeline across North Korea, the Moscow-based company said today in an e-mailed statement.
Gazprom and Kogas, as the Korean company is called, plan to meet again in Moscow next month to continue talks, Gazprom said.
Back in March 2011, KCNA posted this video clip to their web page:
Unfortunately for the North Koreans, actions speak louder than words.
The North Koreans appear to be worried that the unwanted attention brought about by the Xiyang story will have a negative effect on investment in the country’s special economic zones along the Chinese border. In order to combat these growing negative perceptions among Chinese investors, the North Koreans have begun holding a series of invitation-only seminars to tout the benefits of investing in Hwanggumphyong and Rason.
Here is coverage of the seminar in the Global Times (PRC) of the most recent seminar:
The officials told Chinese investors attending a seminar in Beijing that North Korea will allow the Chinese yuan to be used in business transactions, offer tax incentives to targeted industries and ease visa requirements.
North Korea is hoping to spur development of the Hwanggumpyong and the Wihwa Islands, two special economic zones on the Yalu River, which also runs through the Chinese border city of Dandong, Liaoning Province, reported the Beijing News. Favorable policies regarding the Rason Economic Trade Zone, which is closer to Jilin Province, were also discussed.
A North Korean official told the seminar that his country hopes to transform the economic zones into “world-class business districts.”
More than 200 Chinese companies, including State-owned enterprises and private corporations, participated in the seminar.
China’s Vice-Minister of Commerce Chen Jian said cooperation between China and North Korea on the development of the new economic zones is going smoothly.
Despite the enthusiasm from officials on both sides, entrepreneurs expressed concern over the veracity of the country’s legal framework needed to protect their investment.
“North Korea has significant iron ore and coal reserves, but I wouldn’t rush to invest unless I am sure it can be protected by their law,” a Chinese mining entrepreneur who requested anonymity told the Global Times.
What the People’s Daily article did do was make clear how the two sides foresee the function of the SEZ areas. Rasun, it said, “will focus on the development of raw materials, equipment, high tech products, light industry, the service sector and modern agriculture.” Conversely, Hwanggeumpyong and Wihwa Island “will focus on the development of information industries, tourism, modern agriculture and garment manufacturing.”
The Chinese Ministry of Commerce has also moved to back efforts to stimulate interest in the SEZs.
The Hankyoreh offers some additional details on this and previous seminars:
Cars pulled up one after another on Sept. 26 in front of the Bridge Art Center in downtown Beijing, where a big blue sign read “Introduction to the Choson (North Korea) investment environment and counseling on investment areas.” The Chinese corporate executives who stepped out of the vehicles filed into the venue for a briefing on investment in North Korea.
The North Korean Committee for the Promotion of Economic Cooperation and China’s private GBD Public Diplomacy and Culture Exchange Center staged the event over two days in the hope of attracting investment by introducing “promising investment areas” for Chinese entrepreneurs.
The event was invite-only. Attendees walked around the venue, where they were asked not to take pictures. A screen at the front of the conference room displayed videos on the Rason and Hwanggumpyong special economic zones and the tax breaks available to investors. Around 100 Chinese businesspeople sat in their chairs to watch.
At the entrance was a list of around thirty participating North Korean businesses. Many were in areas such as natural resource development (iron and gold mining), seafood farming, and garments. Trade companies also stood out on the list, including the Daesong General Trading Corporation and the Jangsu Trading Company. Thirty-six officials from state-run North Korean businesses provided information about 43 investment projects. The afternoon saw one-on-one talks between North Korean officials and Chinese executives.
A senior official with GBD said hundreds of Chinese businesses would be participating on Sept. 26 and 27.
“There are quite a lot of Chinese businesses interested in investing in North Korea,” the official said.
On the invitations, the organizers touted the investment briefing as an “important opportunity for Chinese businesses to invest in North Korea.”
“Choson’s new leader Kim Jong-un declared that economic development and improving people’s livelihoods are important goals of the Workers’ Party of Korea,” they read.
This is just one of many such briefings that North Korea has organized all over China. On Sept. 7, a counseling session was held in Changchun, Jilin province, for “North Korea Day and China-Choson trade investment projects.” Another investment briefing on Sept. 9 was staged concurrently with the 16th China International Fair for Investment and Trade in Xiamen, Fujian province. A joint China-North Korea economic trade briefing on Oct. 14 in Dandong, Liaoning province, is scheduled to include counseling sessions for the three areas of trade, investment, and labor between 60 North Korean national trade company officials and 100 Chinese businesspeople.
Meanwhile, the Chosun Investment Office of Joint Venture and Investment Committee, North Korea’s body for attracting foreign investment, signed a contract in Beijing on Sept. 22 with China Overseas Investment to set up an exclusive North Korea investment fund of 3 billion RMB, or about US$476 million.
China’s private investors have shown much interest amid signs of change from Pyongyang, but sources said this had not yet led to actual investments.
“In staging investment briefings, North Korea is showing that it has decided on a course of change for the sake of the economy and the public welfare,” said a source in Beijing.
“In China, people have kept asking for Pyongyang to establish more laws and regulations to allay the fears of businesses investing there, so it’s going to take some time to see the kind of investment North Korean really needs for its own economic development beyond things like mining,” the source added.
But after listening to a presentation from Chinese and North Korean officials at one of Beijing’s most expensive hotels laying out the supposed allure of the two zones, the head of one company gave an emphatic “no” when asked if she was convinced.
“We’re not thinking about it at the moment,” said Li Guilian, chairwoman of Dalian-based clothing company Dayang Trands. “We might go and have a look at Hwanggumphyong, but I don’t think we’ll invest.”
She nodded her head vigorously when asked if she thought it was risky investing in such an isolated and backward country.
“Investors need first of all to consider the environment. If there’s a problem with the environment, then there’s no way people are going to commit money,” Li told Reuters.
