Investment Risks and Riddles: Zhejiang Businessmen and the DPRK

By | December 15, 2015 | No Comments

Photos of Zhejiang Merchants ("Zheshang") National Council annual meeting: http://www.lifeark.com.cn/news_info.php?47

The Zhejiang Merchants (“Zheshang”) National Council annual meeting. | Image: wshangju

Part of the allure of Chinese sources is the promise of fresh information on Sino-North Korean economic relations, and the increasing unavailability of official data — such as the disappearance of data on trade with the DPRK from provincial yearbooks since 2008 — redirects energies towards the anecdotal information found in articles.

On the other hand, we must recognize that many Chinese have informational disadvantages relative to Western countries with unfettered access to the internet and greater familiarity with English-speaking international institutions, and have more exposure to, and also incentives for, misinformation in representing their business.

With these caveats in mind, what follows is a 2013 article which purports to report on the increasing importance of North Korean economic relations with the Chinese province of Zhejiang, which lies just south of Shanghai. Reporter Qian Hejin conveys the story of an ethnic Korean member of the Zhejiang Merchants National Business Council, Cui Dongyuan, who is understandably keen to emphasize the golden opportunity presented by economic relations with the DPRK.

Cui credits a “North Korean investigation” with generating the following data:

Of Chinese people traveling to the DPRK, four out of ten (四成) came from Zhejiang; and of the 90% of the DPRK’s goods that are procured from China, of which, again, 60% come from Zhejiang. They also showed that during the Korean War, the largest group were Zhejiang people. When in the past northeastern provinces invested in DPRK projects, behind the scenes the owners were also for the most part Zhejiang people, and they therefore pay special attention to Zhejiang business people.

Let us examine these claims in turn. Ignoring the claims about Chinese visitors to the DPRK, for which even, at the national level, statistics are not publicly available (generally statistics on foreign visitors are more obtainable than on citizens’ foreign travel): regarding the claim that in 2008 it was found that Zhejiang was the source of 60% of goods coming from China to North Korea, although China’s provincial yearbooks no longer publish figures for province trade with the DPRK, the last year to do so was 2008, which indicated that the three northeastern provinces (Liaoning, Jilin, and Heilongjiang) accounted for 59% of China’s exports to North Korea in 2008 (55% in 2007, and 58% in 2006).

As for the province having the most participants in the Korean War, historian Adam Cathcart notes that Shandong (which, admittedly, had strong ties to Zhejiang in the post-liberation era) was first, along with Sichuan, and then all of the Northeast; not Zhejiang. On the claim that the owners of investing northeastern companies are Zhejiang natives, one finds that the founders of the Wanxiang Group (whose investment was headquartered in Beijing rather the three northeastern provinces) are indeed a well known Zhejiang business group, whose experience in the mining sector seems similar to that of Xiyang and Tonghua. However, there seems to be no evidence that the owners of most northeastern companies are Zhejiang people; indeed, the article later states that only a couple of Zhejiang companies have actually invested in the DPRK at all, naming only Wanxiang and Chaoxiang. These are just myths that facilitate business.

The in-situ observations of Zhejiang businessmen visiting the DPRK are, however, basically credible. Included among the more robust claims in the article are the North Korean state’s strategic emphasis on information technology, the intelligence of its technical personnel, the state’s demand that its portion of all fees be commensurate with those of China, and the low relative cost of North Korean labor, which is only likely to become more significant as Chinese wage levels increase and the PRC’s historic labor surplus diminishes.

Qian Hejin (钱贺进) in Hangzhou, “Zhejiang businessman talk North Korea: Basic science very solid, areas of advanced new technology developing” [浙商谈朝鲜:基础科学很扎实 部分高新技术发达], April 2013, Oriental Outlook.

How many Chinese businessmen want to go to North Korea to invest?

Regardless of the reasoning, North Koreans have already come here, taking the initiative to come to China to seek investment.

Having a typical Korean appearance with a round face and slender eyes,  Cui Dongyuan (崔东元; 최동원) sits in a restaurant on Hangzhou’s Wen’er Road.  He invites this journalist from Oriental Outlook, whom he warmly welcomes, saying, “The North Korean trade ministry people regularly consult us on points of economic substance for their publications.”

Accepting the North Korean Culture Ministry’s invitation, in mid-April this Zhejiang import-export company chairman will visit the DPRK to take part in Kim Il-sung’s birthday, “the Day of the Sun [태양절].” During that visit, he will again discuss with the North Korean side about coming to China this year to seek investment.

Acting as the Zhejiang businessman who is the national council’s sole ethnic Korean, Cui Dongyuan has countless links to North Korea.1)Cui is the chairman of a company whose website notes that it specializes in rare earth, jewelry, and a range of other products. His work in the DPRK has been profiled by various Chinese publications since 2010. He grew up in Yanbian, the Korean autonomous prefecture in Jilin province; the family of one of his father’s elder brothers is still living in the DPRK; his younger brother serves in the North as a supply and demand logistics official, and half his relatives live in the DPRK.

Cui Dongyuan, a Chinese-Korean businessman in Hangzhou. Cover image via Zheshang Magazine.

Cui Dongyuan, a Chinese-Korean businessman in Hangzhou. | Image: Zheshang Magazine.

Since 2008, the DPRK has several times dispatched senior inward investment groups to China’s developed eastern coastal areas, and contact with Zhejiang businessmen has been particularly regular and close. Zhejiang businessmen were invited to go to the DPRK to see things for themselves. A few Zhejiang businessmen have already tested the waters, and gone to North Korea to invest in a mine, actions which even caused people such as Kim Jong-Il and Kim Jong-un to stop (驻足) and take notice.

The DPRK implements a strictly planned economy, which outside investors see as an implicit investment risk. But in favorable circumstances, Zhejiang businessmen searching for good opportunities through early entry and positioning hope to be among the biggest beneficiaries of North Korean reform.

Hesitation and misgivings have never been far from these investors setting foot in the DPRK. They can use “early 1980s China” to interpret today’s North Korea, to conjecture on the direction and strength of reform. Yet, to the outside world, North Korea is “a riddle-like country” [谜一般的国家], and they, too, struggle to see it really clearly.

Luckily, even while externally exhibiting the most hardline of attitudes, the North Korean side and these Zhejiang traders still keep in touch, showing patience. The reputation for arrogance, unreasonableness and other such rumors have yet to be confirmed.

Regarding this just-opening national system and window-of-opportunity [正在开启机会之窗的国度], Zhejiang merchants have investment aspirations, but also apprehensions about government policy risk. North Korea’s direction of reform is the issue of greatest concern for them [他们最为关心的问题].

Trade Officials Think Highly of Zhejiang Businessmen [贸易省官员青睐浙商]

Why does the North Korean side want to do business with Zhejiang businessmen? The first Zhejiang traders were deeply unsure [深感不解].

According to Cui Dongyuan, around 2008 the DPRK’s main focal point gradually changed from northeastern China to Zhejiang: “The North Korean side investigated, and the data showed, that of Chinese people travelling to the DPRK, four out of ten (四成) came from Zhejiang; and of the 90% of DPRK goods which are procured from China, of these, again, 60% come from Zhejiang; and that during the Korean War, the largest group were Zhejiang people.2)This estimate does not appear consistent with China’s national and provincial statistical yearbooks, which indicate that, in 2008, 59 percent of China’s exports to North Korea came from the three northeastern provinces. When, in the past, northeastern provinces invested in DPRK projects, behind the scenes the owners were also for the most part Zhejiang people, and they therefore pay special attention to Zhejiang business people.”

The DPRK has allowed foreign businessmen to invest since approximately 2002. At that time, the DPRK started to implement an economic adjustment strategy and a system of managerial responsibility [采取承包责任制], simplify structures, encourage tertiary/service industries and the principle of distribution according to labor [按劳分配原则]. Other measures were taken to develop the economy and externally encourage private (民间) trade and investment, so as to bring about a harmonization of resources [资源均衡]. These measures enabled the DPRK to realize a series of positive changes: economic growth, rising exports, and opening the door to foreign investment.

After this, the DPRK’s two principal external economic cooperation agencies, the Joint Venture Investment Committee (朝鲜合营投资委员会; 조선합영투자위원회) and External Economic Promotion Committee (对外经济协力推进委员会; 대외경제협력추진위원회), repeatedly held investment meetings in China. Particularly, it was at a couple of Special Economic Zones that had been set up in Rason on the east coast and in Hwanggeumpyeong in the west of the Sino-North Korean border that they hoped to attract special interest in investment from China and other countries.

For a long while, northeastern China’s companies and large state owned enterprises had all been the principal focus of North Korean efforts to attract investment.

Since 2008, serving as head of the Joint Venture Investment Committee, Ri Gwanggun (李光根; 이광근) has been closely paying attention to Zhejiang province’s economic practices. This organisation is one of five committees governed directly by the cabinet, and he himself has been appointed Trade Minister. “He has a strong interest in Zhejiang merchants, and in the ways of doing business of us Zhejiang traders who are just emerging in the DPRK, so I invited him to see a small goods market in Yiwu [义乌; a county level city in Jinhua, Zhejiang province],” says Cui Dongyuan.

Soon afterwards, Ri took a small group to visit Zhejiang province’s capital city of Hangzhou and places like Yiwu. In 2011, the Chosun Investment Promotion Agency (朝鲜招商团; 조선 소상단) visited Hangzhou for the second time. According to Cui Dongyuan, the first time that they came to China to seek investment was in the 1990s, when they attached greatest importance to mining and forestry. Even though they tend to rely upon the business communities and state enterprises of places such as Yanbian in Jilin province, the Chosun Investment Promotion Agency still pays close attention to China’s economic development of the Pearl River Delta. As they are not connected to the internet and they have still not formally visited Shanghai, Suzhou, or Guangdong, this coastal investment tour starts from Zhejiang.

The Chosun Investment Promotion Agency came to Zhejiang most recently in late July 2012. The delegation was made up of five members, including DPRK Trade Ministry attaché Kim Jong-gi (金正基; 김정기), officials from the State Academy of Sciences (朝鲜国家科学院; 국가과학원) and Chosun Electronics Trade Development Center (朝鲜电子贸易开发中心; 조선전자무역개발중심), and a translator.

In a Hangzhou bar they met face-to-face with the Zhejiang Merchants (“Zheshang”) National Council representatives.

It is not the first time the Chosun Investment Promotion Agency has met with Chinese businessmen, but for Zhejiang traders like Jiang Ping (姜平), the person in charge of activities related to Zhejiang Merchants National Council, it seems that the North Koreans “want to do something, but don’t seem to know how to do it” [他们想做点什么,但好像又不知怎么做].

This time, the North Korean guests’ main point was to emphasize the role of Unjong Special High Technology Development Zone (恩情高新技术开发区; 은정첨단기술개발구). This development zone would be located in the suburbs of Pyongyang, 30km from the airport, and also where the State Academy of Sciences headquarters is located. In October 2011, the DPRK government decided to seek funding from China, Europe, Southeast Asia and other regions for the purpose of building the high technology development zone, enacting low-tax and tax-free preferential policies.

Also from late 2011, and especially from the start of 2012, the DPRK has repeatedly held investment promotion exhibitions in China, Europe, and Southeast Asia. North Korea has also expanded the Pyongyang spring international commodity exhibition and similar efforts to provide a platform for external trade promotion. The companies that they pay close attention to range from agricultural and processing companies to advanced manufacturing equipment.

The Chosun Investment Promotion Agency shows the Zhejiang traders a Powerpoint presentation in both Chinese and Korean. They propose the BOT (Build-Operate-Transfer) joint venture method: the DPRK to provide the personnel and the Chinese side to offer the capital to establish a joint venture company, setting up to make some kind of merchandise [某种产品].

These items include plants to assemble LEDs, iPads, eBooks, as well as the manufacture of solar batteries and wind power generators. North Korean officials still hope to be able to send someone to Hangzhou to jointly develop software and other products.

“The State Academy of Sciences seems to have pretty good research capabilities,” says Jiang Ping, adding, “Kim Jong-gi says they want the most preferential policy to satisfy investors’ desires.”

Nevertheless, there are many issues which are difficult to clarify immediately [还是有很多问题一时难以明确].

“Most basically, land use fees are just not clear cut,” explains Cui Dongyuan. “In the DPRK, land rights belong to the state, and real estate cannot be traded, so they cannot say what it is worth.”

Kim Jong-gi indicates that land use prices in North Korea can be compared to levels in Yiwu and Hangzhou, “something like, 20 yuan per square meter.”

“To be even more expensive than China is inappropriate” say the Zhejiang merchants [比中国还贵,不合适] one after the other.“We can discuss it later,” the 70-something Kim Jong-gi smiles.

Real estate valuations are a constant variable in China-North Korea relations. Photo of Dandong's Xinchengqu, photo by Adam Cathcart

Real estate valuations are a constant variable in China-North Korea relations. Photo of Dandong’s Xinchengqu. | Image: Adam Cathcart

Dreams Upon Farmland (农田上的梦想)

In autumn 2012, the Zhejiang merchants’ National Council received invitations from the State Academy of Sciences and the Trade Ministry, and organised a team of 43 Zhejiang merchants to go and inspect the DPRK.

The Zhejiang traders’ inspection group was courteously received as distinguished guests, with leaders of the State Academy of Sciences and the Trade Ministry awaiting their arrival at Pyongyang airport.

It had been arranged that the Zhejiang merchants would stay at the Yanggakdo Hotel. Foreign (non-Chinese) visitors generally all stay here. This lofty building sits in the city center, with Pyongyang’s downtown area just across the bridge. Journalist Shen Xiaolin, accompanying them on behalf of “Zhejiang Trade”[浙] magazine, remembers it: “Out the window there was not a single night lantern, not a single human sound; it was a little like China in the early stages of reform” [有点像中国改革开放初期].

The North Korean side’s meticulous planning of the journey indicated the importance they attach to the Zhejiang merchants: besides conventional tourist attractions such as Panmunjom, the Juche Tower and Kim Il-sung’s former residence, they also received an invitation to inspect a television set factory, a computer company and of course, first stop, the Unjong Special High Technology Development Zone.

A big coach sets off from the hotel, traveling for more than an hour, speeding through farmland. The tour guide informs them that “outside the window is the anticipated space for the development of the Unjong Special High Technology Development Zone” [窗外是等待开发的恩情高新技术开发区].

The Zhejiang traders do not get off the bus. Later the car stops beside a 45-storey high grey building complex, which is the headquarters of the State Academy of Sciences.

As soon as they get off, the Zhejiang traders are informed: “Singaporean, Vietnamese and Suzhou inspection teams came here just a couple of days ago.”

Cover story on Oriental Weekly, April 2013: Zhejiang Businessmen Chronicle in North Korea.

Cover story on Oriental Weekly, April 2013: Zhejiang Businessmen Chronicle in North Korea.

In the State Academy of Sciences, the Chosun Investment Promotion Agency once more introduces the Academy and the development zone. And the Zhejiang merchants’ questions are even more direct than when in Hangzhou: “As Sino-North Korean bilateral banking relations for settling trade accounts have still yet to be established, how will you deal with not being able to directly settle accounts?”

To the Zhejiang traders, all of the development zone’s main facilities — including electrical power supply, central heating, as well as internet connection — seem  to be “inadequately prepared” [准备不足].

In the face of the Zhejiang traders’ heavy questioning, the ten or so North Korean officials present remain just as composed as Kim Jong-gi. One by one, they outline the methods of improvement, saying “we will make every effort with the appropriate methods” [我们会尽力,将会有合适的方式].

Chen Guanghan (陈光汉), the chairman of Zhejiang’s Jin Guan Copper Company Limited (金冠铜业有限公司), tells the journalist that, in sum:

If North Korea wants to develop its economy, it must be very open. By just opening a little bit, it will be very difficult to attract investors. Based on the Special Economic Zone’s present condition, the land price is not at all cheap; infrastructure such as roads and electric power are still not complete, and the degree of openness is still far from adequate (开放程度还远远不够).

Clear and rapid transformation [明确而迅速的改变] is very much a precondition for the Zhejiang businessmen to invest in the DPRK.

Li Xinhai (李新海), the chairman of Zhejiang Huating Group (浙江华庭集团股份有限公司) says:

Investment requires long-term stability guaranteed by policy. We want to know whether or not the DPRK has determined to enact reform and opening [改革开放]?

The ever-smiling Kim Jung-gi moderates his expression and replies:

State policy is drafted according to the people’s desires. It doesn’t matter what society you are talking about, the solution of of improving economic management is to let the people be the master of the means of production [改善经济管理的办法,是让他们做生产工具的主人]. Put simply, under comrade Kim Jong-un’s guidance, we consult the world’s most advanced management systems, make improvements in light of our actual circumstances, and research methods of economic management in accordance with the interests of our country’s people.

As the Zhejiang businessmen are still pondering the essence of this pronouncement, Ri Mun-ho (李文浩; 리문호), Science Officer at the State Academy of Sciences adds:

In order to improve the people’s livelihood, must we use the term ‘Reform and Opening’? ‘Opening up’ is not necessarily incarnated in the capitalist system [开放’不是只有在资本主义制度下才能体现].

Cui Dongyuan says that in DPRK parlance, there is no reference to Reform and Opening: “They generally say ‘to raise and better the people’s standard of living’.”

This Chinese ethnic-Korean businessman on average spends half of each year in the DPRK. He says that since Kim Jong-un came to power, domestically the DPRK has really undergone profound change. Kim Jong-un, he says, has made “great efforts to improve the people’s living standards, in accordance with the path of socialism that they believe in.”

As Cui Dongyuan presents it, in Kim Jong-il’s time, it was already decided that the entire country should implement a system of contracted responsibility on rural land, where they chose to contract down to production teams. In 2012, Kim Jong-un announced the implementation of this policy.

“It should be said that the DPRK’s reform signals are already extremely clear” [朝鲜的改革信号已非常明显], says Cui Dongyuan.

Haggling for Ginseng

In 2012, petty traders began to emerge on DPRK roadsides, selling fruit and vegetables from the countryside.

In his experience of buying ginseng in North Korea, Jiang Ping could at last smell signs of the economic system softening (经济体制松动).

When the delegation of Zhejiang traders enters Kaesong Ginseng Museum, the tour guide incessantly urges them that when buying ginseng they must not haggle. Nevertheless, Jiang Ping tries to negotiate with them.

The salesperson hesitates, somewhat wanting to make a deal, and then, pulled to the side by the tour guide for a whisper, is still indecisive.

“One can see that internally there is already flexibility, there is space for profit, perhaps even including a kickback for the tour guide.” Jiang Ping has convinced himself of his perception.

Cui Dongyuan knows the situation better.

Since 2012, many North Korean friends have begun borrowing their work unit names to undertake engagements, submitting to [the work unit] a portion of their profits, keeping a portion for themselves; this kind of thing is becoming more and more common, the state does not restrict or criticize it, but seems to be just observing it.

Even a “frequent visitor” like Cui Dongyuan can be astonished by the change — during this very visit, the North Korean tour guide unexpectedly took it upon himself to explain to Zhejiang merchants about “the Arduous March” [고난의 행군].

This phrase refers to the time when, during the mid-1990s, owing to natural and man-made causes, the DPRK economy came to the verge of collapse, and people died. This fact was once top secret (讳莫如深).

Cui Dongyuan is completely amazed at hearing the tour guide mention these events, and uses Korean to ask the tour guide why he would speak publicly about them. The reply is:

The state instructs us: all circumstances should be conveyed realistically to foreign businessmen. If foreign businessmen do not understand us, how can they help us?

After December 2011, the DPRK not only sent a large number of laborers and bank management staff to China, they also sent several hundred people talented in construction and technology to Germany.

On North Korean television screens, Prime Minister Choi Yong-rim (최영림) has also appeared repeatedly since the first half of 2012. Cui Dongyuan explains his view:

Such frequent reporting on the Prime Minister is unprecedented. The cabinet is the main agent for launching economic activity, giving a signal that North Korea intends to allow the government to focus on economic development.

On the internet, pictures of beautiful traffic police on Pyongyang’s spacious and empty roads frequently circulate. The Zhejiang merchants have on more than one occasion experienced traffic jams, sighing, “In the past, not having visited North Korea, I didn’t understand; now having visited, it appears very different.”

Even though Pyongyang taxis are expensive at US $0.5 per kilometer, more and more people are taking them. “I don’t believe it is being done at public expense. My understanding it is down to the emerging wealthy traders (富裕起来的商贩). By my reckoning, the number of taxis in Pyongyang has increased 300% in 2012 compared to 2011,” says Cui Dongyuan.

Labour prices only one-sixth of Yiwu City

The Chosun Investment Promotion Agency and the Zhejiang businessmen agreed a few Memoranda of Understanding (意向性协议).

In 2011, when the Zhejiang businessmen went to the DPRK to inspect, again they proposed to North Korean officials the idea of establishing a Zhejiang industrial park.  This idea received the commitment of North Korea’s Supreme Leader, who finally chose Hwanghae province (黄海道).

This trade processing zone is analogous to how China’s Shenzhen Special Zone once was, with Zhejiang businessmen entitled to come in and out without a visa. “Their labor costs are barely one sixth of those in Yiwu. An agreement could be signed as early as this June, although things like the period of tax exemption have yet to be fixed,” says Cui Dongyuan.

Cui Dongyuan is still trying to persuade the Joint Venture Investment Committee to establish a trade office in Hangzhou to act as a permanent investment promotion mechanism specially for Zhejiang businessmen. The office could organize trade fairs for North Korean goods, information seminars for investment promotion, and investment meetings.

Zhejiang businessmen still want the DPRK to supply electrical power facilities. At present the DPRK still largely uses 1950s industrial generators, and at least 50% of electricity is lost in the course of transmission. “The Zhejiang merchants team have already agreed a framework for cooperation (合作框架), but the DPRK does not have capital, and can only pay in kind with copper and iron mines,” says Cui.

Ultimately, the factor determining whether these Zhejiang businessmen invest money in the DPRK is still whether the country will change.

Of course, wherever the location, even the most optimistic investor has no lack of apprehensions.

Rodong Sinmun, February 4, 2012

Observing the transportation of coal (a main North Korean export to China). | Image: Rodong Sinmun

In 2011, the investment in a North Korean iron ore mine by Liaoning’s Xiyang Group was obstructed, causing a great flurry of attention (轰动一时). Xiyang Group stated publicly that the North Korean side unilaterally tore up the contract, because the North Korean side had already seized control of the mining equipment, meaning it could engage in production completely autonomously, and Xiyang Group’s preexisting 75% share of profits.

Regarding this matter, a person in charge of the Joint Venture Investment Committee already revealed to Cui Dongyuan that the North Koreans have had many internal discussions about it. Cui explains:

They recognize that Xiyang Group formally stated some basic facts and obligations, but they believe that Xiyang was also liable. [According to the North Korean side], the Xiyang managers responsible for implementing the project changed many times, and, in reality, the investment did not reach the contract value. Also, [they say that] Xiyang did not fully understand the North Korean methods of cooperation, and so forth.

Cui continues:

That is the reason why Zhejiang businessmen want to enter North Korea in such huge teams: to reduce risk [降低风险]. The National Council of Zhejiang Traders also wants to have a specialist to analyze the DPRK, to roughly understand their approach to handling matters, their way of looking at things, etc. It is hoped that Hangzhou City’s trade office can be used as a platform for this, and to then work with the Chosun Investment Promotion Agency to conduct joint research for policy, which could then become fixed in law. This could enormously improve the investment environment.

Cui, too, does not deny that a few Chinese traders’ dishonest conduct brought about a mutual split. For example, fraudulent price reports were conveyed to the North Korean side. As the saying goes, “swindled well enough for a while, sooner or later it was going to get discovered” [骗得了一时,迟早要被发现].

Cui explains:

Having had 20 years experience of dealing with North Koreans, you become friends with them and they can work well with you. But if you cheat them once, they cannot take things lying down. So don’t be greedy over small, easy advantages.

Regarding these inspections, Zhejiang traders’ greatest discoveries include that the DPRK is a country rich in human resources. This does not just refer to common laborers (ordinary manpower; 一般劳动力), but also includes advanced science and technology talent.

Says Jiang Ping:

The DPRK provides twelve years’ compulsory education, and their basic science is very solid. University students’ evenings contain no nightlife such as bars; they focus on study, so that the level of university education and cultural industry may not fall far short of that in developed countries. This is also a reason why North Koreans sent abroad as software programmers are so popular.

Cui Dongyuan believes the DPRK has developed some quite high-level new technology, but due to international sanctions, is unable to show its civilian technology to the world:

To my knowledge, the core technology of one Samsung department originated in the DPRK. North Korea uses the tide to manufacture organic fertiliser (朝鲜利用海潮研制出有机化肥), and Anhui province adopted their technology seven or eight years ago. And the DPRK’s non-polluting boat paint is even more competitive than Japanese and South Korean products.

His company already obtained the right to sell this advanced technology internationally from the State Academy of Sciences.

This is not Cui Dongyuan’s first collaboration with the State Academy of Sciences. In 2012, components (零配件) for a much-discussed made-in-the-DPRK tablet computer were supplied by Cui Dongyuan. The machine runs computer applications developed in the DPRK, also in keeping with their requirement for domesticizing national production (国产化).

An “Achim,” or “Morning” tablet, which the North Korean authorities market as a domestic product. | Image: KCNA

The Mine Monitored by the Leader  (领袖关注的采石场)

At dinner in the rotating restaurant on the top floor of the Yanggakdo Hotel, North Korean e-commerce development center chief Han Song-chol and his interpreter took the initiative to find Chen Baiheng. He proposed the need to visit his [Zhejiang] partner Cixi Jiali Mechanical Industry Limited Company to study their excellent land development experience.

But afterwards, Chen Baiheng did not immediately seek the presence of the North Korean guests. For the next three years he visited the DPRK to observe and study, gradually returning from excitement to calm: “Investment talk is just an outline. How it would concretely operate and the scale of technology have all yet to be decided.”

Shen Xiaolin (沈晓琳) says, “Chen Baiheng has yet to invest a single cent in North Korea, so he takes information relating to North Korea at face value.”

As the Zhejiang Business Council grasps the situation, at present trade between Zhejiang merchants and the DPRK is still primarily scattered (零散). The only actual investments have been those of the Wanxiang Group (万向集团), Chaoxiang Export-Import Trading Company (朝翔进出口贸易公司), etc., entering into copper mining, serpentine rocks (蛇纹石), and such like.

A couple of companies’ DPRK investment operations have also not gone smoothly [有不顺利]. Cui Dongyuan and his partner’s investment in a stone quarry in Hwanghae Province has had some somewhat awkward moments. Since 2011 they have invested 13,000,000 yuan [approximately 2 million USD] but have still yet to obtain the expected results.

“We did not accurately evaluate the size and quality of serpentine rock reserves: the yield [of the material] is only 20%. But we have just started, and will continue mining.” Cui Dongyuan will not be discouraged.

When Cui Dongyuan began doing business in North Korea in 1996, at first he was selling cod from there to China. In 2001, he decided to establish a fiberglass factory and a vegetable farm in North Korea, becoming one of the first foreigners to invest there. He says the DPRK was extraordinarily approving of foreign companies that could directly supply things to the nation and government, and the latter offered a stable policy environment and every kind of preference.

In establishing the fiberglass factory, the DPRK side offered a building for use as a factory, whereas he gave equipment worth over 300,000 Chinese Yuan (RMB) (approx. $50,000) to the North Korean side, whose only responsibility was to manage it and make a profit.

His vegetable farm recovered its investment in only one month. This kind of closeness with the North Korean government makes him capable of exploiting each kind of opportunity with the DPRK to conduct trade and investment.

In reality, Cui Dongyuan does not regard the mine as successful, despite successively attracting inspections from Kim Jong-il and Kim Jong-un. Looking down at the busy excavation facilities, the North Korean side seems aware of the immense value of the serpentine rock.

In 2011, Kim Jong-il visited the quarry and stated that: “An important way of working to earn foreign currency is by the development of this commodity.”

North Korea’s mining enterprises are famed locations. Quarries cannot but stop production for a month to receive visitors from all over the country. In 2013, Kim Jong-un made another visit to the quarry, not long after issuing his New Year address.

In contrast, the Wanxiang Group is trapped in quite an impossible situation [进退两难]. The Hyesan Youth copper mine which they developed is the DPRK’s largest copper mine. In November 2011, Wanxiang and Hyesan Youth Copper Mine agreed to establish a JV enterprise — Huijung Mining Joint-Management Company (惠中矿业合营公司).

As published reports indicate, not long after this company had been established, and before it had commenced production, Huijong Mining’s Chinese representative was suddenly forced to return to China. The dispute arose when the proprietary capital contributed by the Wanxiang Group was just flowing into “production,” but they had still yet to purchase the logistics vehicles, construct staff dormitories, etc.

According to the report, the Wanxiang Group’s investment in Huizhong Mining had already exceeded the RMB 150 million yuan (approx. $24 million) originally publicly announced. Meanwhile, Lu Guanqiu, the Chairman of the Board, wanted to play the “long game”  [长线牌] and continue waiting for the DPRK investment and operating environment to improve, and was not indicating withdrawal.

Zhejiang traders regard policy risk (政策风险) as their greatest worry: “The North Korean side has still not put forward a favorable policy, and verbal promises give people a feeling of unease.  Policy issues are the greatest risk,” believes Jiang Ping.

“They need the kind of guarantees that come from national laws” [要以国家法律的形式来保障], says Cui Dongyuan. The Zhejiang Business Council’s Zhejiang Trade Research Institute is currently planning to establish a specialist DPRK research department.

In June, the Chosun Investment Promotion Agency again want to come to Hangzhou. It is unknown whether they will bring anything for the Zhejiang businessmen.

Source: Qian Hejin (钱贺进) in Hangzhou, “Zhejiang businessman talk North Korea: Basic science very solid, areas of advanced new technology developing” [浙商谈朝鲜:基础科学很扎实 部分高新技术发达], April 2013, Oriental Outlook. Translation by Matthew Bates.

Correction: Substantial changes were made to paragraphs one, two, and six on January 5, 2016. On January 9, 2016, further changes were made to paragraphs two, four, and five.

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1. Cui is the chairman of a company whose website notes that it specializes in rare earth, jewelry, and a range of other products. His work in the DPRK has been profiled by various Chinese publications since 2010.
2. This estimate does not appear consistent with China’s national and provincial statistical yearbooks, which indicate that, in 2008, 59 percent of China’s exports to North Korea came from the three northeastern provinces.

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