“Nightmare Investment”: Documenting North Korea’s Abuse of the Haicheng Xiyang Group

By | August 15, 2012 | No Comments

Everybody smile: North Korea’s grey regent figure, Jang Song Taek, concludes a meeting in Beijing with PRC Minister of Commerce Chen Deming, August 14, 2012.  But where is Xiyang’s money? | Image via PRC Ministry of Commerce


“Nightmare Investment”: Documenting North Korea’s Abuse of the Haicheng Xiyang Group

by Adam Cathcart

Having just arrived in Beijing – staking out the North Korean Embassy on my very own “Jang Song Taek Watch”, as it were – I’m looking everywhere in the papers for any reference to the devastating accusations by the Liaoning mining consortium Haicheng Xiyang (known more widely as Xiyang) against their North Korean counterparts.

There is little by way of information on the controversy here in Beijing, but fortunately in English, we have word on the controversy: Isaac Stone Fish has a thumbnail sketch at his Foreign Policy blog, and Michael Rank has the extended and vital version at Asia Times. These accusations of wholesale North Korean theft from and violence toward Chinese counterparts are detailed, and they are absolutely mind-blowing. North Koreans smashing the windows of Chinese workers in the DPRK, absconding with hundreds of millions of yuan, demanding prostitutes from CCP colleagues while in China, and then hiding behind the shield of the Korean Workers’ Party? If you dig deep enough, any one of these is almost as bad as the May “hostages at sea” episode.

Perhaps that is why they have gotten zero play in the mainland media, which is doing its best to keep taciturn on the Jang Song Taek front.

(As a parenthetical note about mainland news coverage of the visit: Today’s Huanqiu Shibao, August 16, carries but one story about the North Korean visit to Beijing. It is more or less a retread of a PRC Ministry of Commerce press release [linked via the pic above], an August 15 Rodong Sinmun article and a South Korean MBC article from the same day, revealing just the basic focus of the Sino-North Korean summit on the Special Economic Zones on either northern periphery of the DPRK.

Fortunately for the Huanqiu editors and the press office at the Foreign Ministry, everyone seems obsessed this week – hell, this quarter – with island disputes involving Japan, meaning that there is very little public heat being directed at the DPRK, at least thus far, for the story released on August 4.)

Having now read through the main source regarding the case thanks to Michael Rank and Aidan Foster-Carter – Haicheng’s own indictment, released to Boxun.com — the details are absolutely devastating and deserve greater attention.

A few brief comments on the contents of the file:

– The bullish Haicheng contract with the North Koreans probably got a nice bump from the 2009 Wen Jiabao visit to Pyongyang.  It was specifically endorsed by the DPRK Supreme People’s Presidium.  There are all kinds of extremely high-level fingerprints all over this thing.

– There is a very strong implication in the materials that DPRK Premier Choe Yong Rim was responsible for the violent ouster of the Chinese from the mining site in spring of 2012.

– On Leap Day (February 29, 2012), the North Koreans finally become physically aggressive and overbearingly arrogant toward their Chinese partners – was this in some way connected to the food deal with the US, signed on that day?

– Discussion of staggering North Korean corruption is not supposed to be a part of the Chinese conversation about the DPRK, but things are moving in that direction.

– Kim Jong Un can’t solve this problem with a simple visit to the amusement park with the Chinese Ambassador, or a little plaque in Rason praising dead Chinese capitalists.

Too little, too late? PRC Consul-General in Chongjin, Tian Baozhen, helps to unveil a North Korean monument to a Christ-like Chinese capitalist in Rason | Image via Korean Central TV

“How a Destroyed Contract Caused Liaoning’s Haicheng, a Private Enterprise, to Lose Hundreds of Millions of Investment Irretrievably in North Korea 

(撕毁合同 辽宁海城民企在北朝鲜投资数亿血本无归,)” Boxun.com, August 4, 2012.  Translated by Adam Cathcart. 
海城西洋集团(下面简称西洋)在朝鲜投资的【洋峰合营会社】,是中国目前对朝鲜投资最大的项目,从2007年开始到2011年9月经过了4年多时间,总计投入人民币2.4亿元(3000多万欧元),建成现代采矿场,年生产50万吨铁精粉选矿厂,同时建成配套设施齐全及朝鲜员工住房210栋等。 Investment in North Korea’s “Yangbong Joint Venture”( 洋峰合营会社) makes Haicheng West Pacific Group (henceforth referred to as Haicheng) China’s largest investment project in the DPRK. Since its beginning in 2007 until September 2011, more than four years have passed, during which investment in North Korea totaled 2.4 billion RMB — more than 30 million euros. Modern mining sites were built, resulting in annual production of iron ore of 500,000 tons. At the same time, Haicheng built a complete series of supporting facilities which resulted in housing for 210 North Korean workers.

On April 25, 2011, the mine began its production of [what would have been a projected] annual output of 500,000 tons of crushed iron ore [铁精粉, hereafter iron ore — about which I could be incorrect, not being a mining expert — Ed.]. Thanks to the efforts of Haicheng employees, Haicheng [Company was granted] smooth [permission to] drive in North Korea, and bring 100 skilled workers — the technical backbone of the company’s domestic processing plant — to North Korea. For the first time, [North Korea] was driven to produce iron ore of the highest quality: its iron content exceeded 67%, with silicon at less less than 3%, low in sulfur as well as phosphorus. For more than three months, hand-in-hand, the Chinese shared their technical knowledge with North Korean workers, and North Korean workers seized the technical knowledge for producing iron ore, resulting in the production over 30,000 tons of iron ore.

On September 6, 2011, the North Koreans suddenly put forward [提出] 16 problems which went completely contrary [相违背] to the contract, and then unilaterally tore up the contract, resulting a complete cessation of production by the joint venture.

The main issues raised by the DPRK ran as follows:

1. A “resource fee” valued at 4-10% of the sales price of the iron needed to be paid by Haicheng

2. Haicheng was told it needed to pay an annual rental fee of one Euro per year for all space

3. Haicheng had to pay .14 Euros for every cubic meter of seawater for any use  […]

4. Electricity would be charged at a rate of 0.50 Euros per kilowatt, exceeding the contract’s clear definition of a rate of 0.33 yuan per kilowatt [or about .03 Euros, representing, roughly, a 16-fold increase in the price for electricity – Ed.]

5. The North Korean side demanded equal pay between North Korean and Chinese workers. The contract had stipulated that monthly salaries for North Korean staff should be more than $ 30 per month, and the joint venture paid 300 yuan per person per month [about $48 USD, an 80% increase. The assumption here is that Chinese workers make well more; their salaries are not stated – Ed.].

[…]    The North Koreans were eager to break the contract [急于撕毁合同] because:

Wonjin [翁津] Mine is North Korea’s most immense undeveloped mine, with total estimated reserves of more than 17 million tons of low grade, lean iron [贫矿], the average iron content of which is only about 14%. The technical means for processing low-grade minerals are a worldwide problem for the industry. Because of North Korea’s closed state system, Haicheng was not allowed to bring a large number of ore samples back China for experiments, and, only able to estimate what kind of design it would need [in order to extract the ore], Haicheng put itself at great risk with its investment.

根据朝鲜外商投资资源类政策和朝鲜的社会条件西洋是不会去朝鲜投资,朝方为了拉西洋去朝鲜投资,采用欺骗加许愿的手段,所以,合同签署的条款十分优越,包括2009年西洋因为朝鲜政府调整外商投资政策而停止投资,朝方马上以最高人民议会常任委员会名义给西洋下发【53号文件】,文件内容是保证西洋签署的合同30年不变,现在把西洋从朝鲜赶出来,这不是践踏了朝鲜最高权利机关的权威性吗? Based upon the North Korean laws and policies on foreign investment in resources, as well as the social conditions of North Korea, Haicheng cannot [any longer] go to North Korea to invest; the North Koreans attracted Haicheng’s investment into their hands through means of trickery. Therefore, the terms of the contract signed have been definitively disturbed [十分优越], including the adjustments made by the North Korean government to its foreign investment policy [?], and Haicheng will cease its investment immediately.

朝方马上以最高人民议会常任委员会名义给西洋下发【53号文件】,文件内容是保证西洋签署的合同30年不变,现在把西洋从朝鲜赶出来,这不是践踏了朝鲜最高权利机关的权威性吗? The contents of “Document 53,” issued by the North Korean Supreme People’s Assembly for Haicheng, had guaranteed that the contract with Haicheng would not change for 30 years! But now Haicheng has to leave [赶出来] North Korea in a rush: Doesn’t it seem that this occurrence tramples on the authority of the DPRK Supreme Organ [这不是践踏了朝鲜最高权利机关的权威性吗]?

North Korean Premier Choe Yong Rim, in hat, is spotted by Rodong Sinmun at a coal mine, February 25, 2012 | Link: NK Leadership Watch’s highly useful compendium of Choe’s public appearances

In Septmeber 2011, after more than four years of hard investment and overcoming unimaginable difficulties, Haicheng finally started production on April 25, 2011, taking more than three months to produce over 30,000 tons of iron ore. […]

On October 18, 2011, under the organization of Wang Congrong [王丛容], the Secretary of the Chinese Embassy in the DPRK and the Director of the Investment Committee of the Korean joint venture, Hong Nanji [洪南吉], the two sides participated talks as long as 12 hours in Pyongyang; these made no substantive progress .

On February 7, 2012, the DPRK unilaterally terminated the joint contract, and then issued “Document 58” of the Korea Investment Committee which revoked the founding certificate of the Haicheng-NK joint venture.

On February 29, 2012, the North Koreans began to use violent means to force out and restrict the rights of Chinese workers, shutting off electricity, cutting off communication with the outside, smashing the glass on the Chinese workers’ housing, and depriving Chinese employees of their freedom of movement [剥夺中国人外出的自由权].

On March 2, 2012, at 2 a.m., the Vice Secretary of Lingfeng Group [岭峰会社], Kim Hualong [金华龙] led more than 20 armed police and security officers to forcibly break into the residence [area] of the Chinese, rousing people out of sleep to forcefully gather together and declare: “The joint venture has been dissolved following on the preparation and approval of the Prime Minister [Choe Yong-rim] [洋峰合营会社取消是经过国家一把总理签字批准]”

These words fully proved that the actions stemmed not only from the corporation, but had also become an act of state, so [said Kim Hualong to the Chinese], you must leave immediately. Facing this “enemy treatment”of forcible deportation, the Chinese head of the joint venture Dong Ye [董野] became the representatives of 10 Haicheng employees who stayed [留守员工] . The North Koreans took the ten Chinese staff and detained them in a bus. Then North Koreans escorted them directly to Sinuiju, where they were repatriated to China. This is how force was used to rob all of Haicheng’s assets. Haicheng’s investment in North Korea had become a nightmare [噩梦] . Anyone who enters into the tiger’s den of North Korea will in the end be risking their lives.

[End translation portion.  More to come, possibly. — Ed.]

No Comments

  1. How would you explain the success in 開城/개성, where even at this moment during the coldest moment in North-South relations, that the industrial complex can still go on strong. Yet projects like the one you mentioned, and other previous efforts (not just with China, but other countries as well) meet up with this kind of treatment from the North Korean government? Is it industry-specific? Kaesong is filled with manufacturing and textile, not ore mines. Or is it because the North Koreans are using this as a sort of protectionist tactic? Although, I haven’t heard of the Swedish Noko Jeans meeting up with the same problem, but then their denim isn’t exactly in direct competition against Vinylon.

    The more important question would be, how the heck does the Chinese government convince private companies to continue investing in North Korea with something like this, despite recent pledges (http://www.nknews.org/2012/08/china-north-korea-step-up-trade-zone-cooperation-cbs-news & http://www.nknews.org/2012/08/n-korea-wins-china-pledge-for-better-economic-relations-businessweek & http://www.nknews.org/2012/08/third-meeting-of-dprk-china-joint-guidance-committee-held)?

  2. Good point — Kaesong by comparison is sacrosanct. work stoppages are one thing, total confiscation of assets and expulsion is another. See Haggard’s latest on this: http://www.piie.com/blogs/nk/?p=7158

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