China: Paranoia Strikes Deep

October 1, 2012 6:30 AM

South Koreans sometimes label Chinese investment in North Korea as “economic colonialism.” I normally discount these concerns as slightly paranoiac but a series a press reports from last week are starting to make even me wonder.

First, multiple stories appeared in the Chinese and South Korean press describing an agreement between the China Overseas Investment Federation (COIF) and the North Korean Investment Office in Beijing, apparently a sub-entity of the North Korean Joint Venture and Investment Committee (JVIC) to invest roughly $500 million initially targeting infrastructure, including port development, mining, including downstream processing, and real estate, including luxury hotels. As noted in an earlier post, North Korea has rare earth deposits, but lacks processing facilities. Choi Sung-jin, identified as the chief of investment of the DPRK's Committee of Investment and Joint Ventures, said the Chinese investors would be extended preferential treatment in income taxes and tariffs on imported equipment and raw materials. The official also pledged to provide legal support for the interests of investors. Choi also indicated that North Korea is hoping to adopt the build-operate-transfer model to finance its infrastructure projects, which include the construction of a 376km high-speed railway, a highway project and an airport construction project.

Then, Tokyo Shinbun, not necessarily the most reliable sources, reported that in while in China not only had Jang Sung-taek negotiated agreements on the Rason, Hwanggumphyong and Wihwa Islands special economic zones, but that North Korea and China had reached agreements to designate Nampo, Sinuiju, and Haeju as special economic zones. A zone at Sinuiju, the border town through which much China-North Korea trade passes, is a natural and indeed has been mooted for years. Nampo is another natural for an SEZ.  But Haeju, with its military facilities allegedly connected to the sinking of the Cheonan, is practically within sight of the Incheon airport. The North Koreans jammed signals of more than 1,000 aircraft operating at the airport according to a report recently presented to the National Assembly.  If there it is an announcement that would seemed designed to bait the South Koreans, it would be establishing a China-focused SEZ at Haeju--which was supposed to be the site of a North-South cooperation project under the ill-fated October 2007 summit agreement.

There are reports that the RMB circulate in parallel with the North Korean won as official currency in these zones. Although some seem to regard this as a major development, it is simply recognizing facts on the ground: the North Korean won is collapsing, North Korean workers would prefer to be paid in RMB, and doing all business in RMB would save the Chinese investors from the hassle of dealing with North Korea’s arbitrary currency moves. Parenthetically, it would seem that the populace of Haeju could use all the help that it can get: in July a Danish aid agency provided an eyewitness account of severe malnutrition there.

Finally, the pièce de résistance: Arirang is reporting that “North Korea has granted China exclusive rights to explore all of its underground resources in its latest attempt to use foreign assistance to boost its economy.” The report may be inaccurate,  and the exclusive right is for exploration, not extraction. Nevertheless, the idea that a sovereign country would grant to the official agency of another country the exclusive right to map the location of its resources is mind-boggling. So much for juche. How does one say satrapy in Korean?


Fred Zimmerman

Not sure why it is so mind-boggling that NK would allow China, which has the technical capability that NK doesn't, to map its mineral resources. The US just did the same thing in Afghanistan. In both cases the end result is the same: local potentates wind up with control over access to huge wealth. The superpower gets 90% of the wealth extracted when actual mining commences, local potentates get 9.9%, and local populations 0.1%.

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Marcus Noland Senior Research Staff

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