North Korea becoming open field for Chinese firms to compete in

By J E Hoare Source:Global Times Published: 2012-10-21 23:00:05

September saw a wave of publicity over an alleged spat between a Chinese company and its North Korean counterpart from a business deal that went wrong.

As often with stories about North Korea, interest quickly faded once it was clear that this was not "the end of China's support for North Korea" as so often predicted but something more akin to the normal give and take of business activities.

Yet the journalists seemed to have missed another equally important story that casts a different light on the China-North Korea relationship.

On September 22, the Hong Kong-based Chinese Outward Investment Summit and North Korean investment office in Beijing signed an agreement to provide a fund of 3 billion yuan ($500 million) for projects in the DPRK.

Such a development is significant since it seems to mark a new stage in Chinese involvement in North Korea's economic development.

The fields of likely investment are not new. They include a certain amount of infrastructure work, including real estate and port development, as well as mining. Hitherto, however, Chinese resources and investment have been largely drawn from China's northeastern provinces.

The involvement of a Hong Kong-based organization, and one that is clearly associated with China's wider outward direct investment policies, indicates something wider than neighborly interest.

The Chinese position seems to be that North Korea is stable under its new leadership and, no doubt with proper precautions, can be a reliable business partner.

It may also show that China wishes to move away from the constant provision of aid to North Korea toward a more regular economic partnership.

Negative assessments of North Korea's economic development continue as regular features in most of the world's press. Journalists who manage to get to the country, or who rely on refugee reports, play down the signs of economic change.

Clearly such change is not even. The capital, Pyongyang, benefits more than other areas, but the changes are not confined to the capital and can be seen in towns such as Wonsan and Hamhung.

By all accounts, Rason, the first special economic zone in the far northeast of the country, which has languished since its foundation in 1993, appears to be enjoying a new lease of life. The Kaesong industrial park, close to division line of the demilitarized zone, continues to function in spite of the poor state of inter-Korean relations.

China is probably the main investor not just in the extraction industries but also in fields such as tourism. Chinese tour parties are found all over the country, and have replaced the South Koreans and Japanese of earlier years. However, there are no signs of the Chinese "takeover" of North Korea that was widely predicted a year or so ago.

As with Myanmar about 10 years ago, some commentators see all Chinese activities as a seamless whole.

Chinese economic activity is seen as inevitably government-inspired and with a nefarious purpose.

Nevertheless, the reality is that Chinese companies have found in North Korea a field with relatively little competition thanks to the policies of the South Korean and Japanese governments and UN sanctions. 

Other countries also engage in economic activities in North Korea, sometimes in surprising fields such as animation, but many are discouraged by the generally hostile international environment toward the country.

Since the US Treasury took measures against North Korea in 2005, international banks have been wary of transactions involving the country. This does not make doing business easy.

This environment is unlikely to disappear in the short term. North Korea's default on its debts in the 1970s has not been forgotten and is occasionally reinforced by stories of new defaults. Sanctions from the UN and others dissuade some from becoming involved.

Yet many companies manage to do satisfactory business with North Korea and express themselves satisfied with the quality of the products.

Perhaps this new Chinese investment program will encourage others also to help bring the country out of its economic isolation.

The author is a research associate at the Centre of Korean Studies, University of London, and formerly a British diplomat in North Korea.

Posted in: Asian Beat, Viewpoint

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