Port Mentality: North Korean-Chinese Relations and Rajin

By | September 21, 2012 | No Comments

Rason is a relatively small city in North Korea, yet returns to the spotlight repeatedly.  If Sabine Van Ameijden viewed Rason through a Mahanian lens, then Nick Miller’s vision offers a complementary vision through a financial pince nez.  It’s clear the area can generate great wealth for a cash-strapped North Korea.  However, just as roads can be driven in either direction, expectations for Rason have at least two broad thrusts: Newly laid infrastructure works to convince the North Koreans that Chinese and Russian investors won’t be able to leave North Korea without losing all their work.  China and Russia are convinced that North Korea will quickly grow addicted to cash infusions and legitimate rent-seeking opportunities that North Korea and therefore suddenly fall in line in a way North Korea has not done since the DPRK itself came into being. Roger Cavazos — Coordinator

Port Mentality: North Korean-Chinese Relations and Rajin

By Nick Miller

Now the way to build a successful Special Economic Zone is like this…
PRC Premier Wen Jiabao and DPRK’s Jang Song-taek meet in Beijing August 2012.

Jang Song Taek (장성택 张成泽) visited Beijing and China in mid-August. According to KCNA, his visit to China to lead the DPRK delegation for a third meeting of the DPRK-China Joint Guidance Committee for the managing of the three Economic Trade Zones (경제 무역 지대/ 经贸区): Rason(라선/罗先)  Hwanggumphyong (황금평/黄金平岛),  and Wihwado (위화도威化岛).

The Three Economic Zones: Eastern one is Rason.

Hwanggumpyong and Wihwado Special Economic Zones

China’s New Port

One of the results of this visit was to increase the amount of much needed Chinese investment into North Korea. It was reported that on September 1 that Yanbian Haihua Group signed a deal in Pyongyang to create a joint venture for the North Korean port of Chongjin in North Hamgyeong Province. This joint venture would give China a 60% stake in the project with North Korea owning 40%. This deal would allow China access to the ports for over 30 years and have the capability of processing 7 million of tons/year. KCNA reported that the Raijin Port-Wonjong road would be one of the first areas to be reconstructed in order to assist in the development of the Rason Economic Zone and create a new hub of international trade and tourism.

Why is this port important to China’s grand strategic goals? China needs greater access to the sea to assist in moving cargo out of its landlocked Northeast provinces – Jilin, Heilongjiang, and Liaoning. According to Cho Bong-hyun at IBK Economic Research Insitute, as China’s cargo continues to rise China will need to utilize more ports to move goods to overseas markets, even if PRC domestic economy re-balances. China has been using railways to transport its raw materials out of its northeast provinces and by securing more North Korean ports this saves the Chinese on shipping costs. The cost for the investment was € 9, 430, 000 million  ($12 million US) and the first shipment will start at the end of 2012. This was not the first port that Pyongyang agreed to share jointly in 2008 Pyongyang agreed to share Raijin port, which increased Beijing’s presence in the East [Sea].

            Chinese gamble or is China Gambling?

Lucky name: unhappy fate. Xiyang called their investment in North Korea a “nightmare.” Having blasted back on September 5, North Korean media is now playing nice.

 South Korea’s Unification Ministry spokesperson Kim Hyung-suk stated that not enough is known about the contract that was signed between China and North Korea. This project has been a goal for China for a year but the amount of investment China’s needs to make the venture succeed and there is still a very high risk of failure.

Chinese investors are wary of further investing into North Korean projects because of their history of not standing to their contracts. One of the more recent cases of Chinese projects in North Korea failing is from the Xiyang Group, who charged its North Korean investors with violating investment laws. The joint project was for an iron-ore powder venture and became “nightmare” for the Chinese investors. China and North Korea have a cordial history of extractive projects and trade, so this should have been easy. The project was valued at over €36 million (over $40 million US) and Xiyang held over 75% of the stake. Wu Xisheng, vice general manager of Xiyang Group that the DPRK does not have right conditions for foreign investment to be successful nor do they have the necessary legal or social foundations in place to make it work.

Foreign Ministry spokesperson Hong Lei said that it was Beijing’s desire to work with Pyongyang over any problems that occur with the economic projects and encouraged Chinese investors to carry out more projects within North Korea.  Wu Xisheng, Xiyang’s Vice General Manager, countered the Foreign Ministry spokesperson’s assertions. He had a very different impression from being on the ground and said that Chinese government policies of continued to support and investment are wrong. KCNA was aggrieved with the conglomerate counter and counter-attacked viewing Xiyang’s comments as being orchestrated by “hostile forces”. Articles attacking China are rare coming from North Korea given how crucial their investment is needed to keep the regime alive.

Drew Thompson, a Korea Specialist with the Department of Defense, stated that Chinese companies have invested over $98.3 million into North Korean projects between 2003-2009 while Chinese investment in South Korea in 2011 reached an estimate of $3 billion.  China’s investment into North Korea have been relatively small because the projects have been less successful due to high rent, poor infrastructure, and bad political environment. One of the major ports China is investing in Pakistan, the Gwadar port, $198 million.  Rudiger Frank, a North Korean expert at Vienna University, believed that it was in Kim Jong Un’s best interest to bring economic success to ensure political legitimacy but North Koreans are still suspicious of Chinese investments, trade, and Chinese businessmen within the country-or any foreigner for that matter.

At a recent presentation to Brookings, former British Ambassador to North Korea John Everard spoke about how the North Koreans are aware of the abuses of Chinese investors within the DPRK, and they are resentful to being dependent on the Chinese for investment. For their part, Chinese often leave with a deep impression of North Korean ungratefulness: no matter how much aid or investment the Chinese government pours into the country North Korea, no “thank you” is forthcoming.

Taken together the port deal and ancillary developments provide at least some conditions to help North Korea integrate into the globalized world if they choose, but no matter the investment problems China still see benefits by investing in North Korea to maintain its historical friendship and prevent them from the killing the few golden geese they possess. However, if history is a guide, there is a reason to be skeptical of the future success of new investments.

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