North Korea on Wednesday launched a blistering attack against charges it was a “nightmare” to do business in, complaints that threaten desperate attempts to boost investment from solitary ally China to help repair its broken economy.
The extremely unusual attack underlines the reclusive state’s sensitivity over its increasingly heavy dependence on China and comes as Pyongyang’s new leader Kim Jong-un seeks a state visit to Beijing to plead his case for more investment.
The rebuttal, in a statement on North Korean state news agency KCNA, follows very public comments by Chinese miner and steel manufacturer, the Xiyang Group, which described its investment in an iron-ore powder venture there as “a nightmare”, accusing the North of violating its own investment laws.
“It [Xiyang] has carried out only 50 per cent of its investment obligations though almost four years have past since the contract took effect,” KCNA quoted a spokesman for North Korea’s Commission for Joint Venture and Investment as saying.
The complaints by Xiyang underline the difficulty of doing business in one of the world’s most isolated and impoverished economies.
And they come amid a welter of criticism of the North, whose economy is smaller than it was 20 years ago according to United Nations data, and where hard-nosed Chinese businessmen have to contend with Beijing’s desire to prop up its ailing neighbour for geo-political reasons.
North Korea almost never criticises its neighbour or any Chinese entities in public. The KCNA article said the comments had been whipped up by “hostile forces” in an orchestrated media campaign to blacken the isolated state’s name.
North Korea has for years pursued a “military first” policy that critics say has impoverished its people while developing one of the world’s largest armed forces and spending money on developing a nuclear deterrent.
It has been it sanctioned and largely cut off from the international economy in punishment for its nuclear programme.
Despite sitting on potentially trillions of dollars of mineral reserves ranging from gold, to iron ore and rare earths as well as uranium, all but the bravest investors have been deterred by a North Korea’s toxic economic environment.
Between 2003 and 2009, Chinese investment in North Korea stood at US$98.3 million, just 12 per cent of the amount Chinese firms have invested in South Korea, according to Chinese data cited in a last year report by Drew Thompson, a Korea specialist who now works at the US Department of Defense.
Thompson said in his report, the most detailed on the subject, that Chinese investments were “smaller and less successful than projects in neighbouring states” due to “rent seeking, poor infrastructure and the oppressive political environment”.
A recent trip to Dandong, a Chinese town on the North Korean border, showed that while traders were hopeful of an opening under Kim who is believed to be in his late 20s and became the third of his line to rule, little had changed.
“I sell mainly autos and from what I see every year, they buy fewer and fewer. The demand there gets smaller every year,” said a trader in Dandong who refused to give his name due to the sensitivity of the cross-border trade.
North Korea’s official ideology is based on economic self-dependence but in reality it has been unable to feed its population for decades, plant and equipment lies idle due to lack of electricity and much of it is too old to be of use.
Adding to its problems, reports are increasing that this year’s grain harvest, never enough even in good years, has been badly hit by poor weather.
Sanctions, the collapse of the Soviet Union and a freeze in relations with prosperous South Korea have forced it into China’s arms and last year, 89 per cent of the North’s trade was with its powerful ally, excluding operations in an economic zone with South Korea, which is counted as internal Korean trade.
A series of revisions to laws governing special economic zones this year indicate that the North was heeding criticism, but so far the reforms have yielded little in real terms.
“Kim Jong-un more than any of his predecessors needs economic success for his political legitimacy. This implies measures to make the economy more efficient – i.e. reforms,” said Frank Rudiger, a professor at Vienna University and an expert on North Korea.
“As much as they need it... North Koreans are very, very suspicious of the massive onslaught of Chinese investment, trade, business people, goods and services,” he said.
A Xiyang official said earlier that it had signed up for a 75 per cent stake valued at 36 million euros (HK$350 million) in a 10 million tonne a year iron ore processing plant.
It started producing in April last year and stopped two months later, after the official said North Korea had prohibited it from selling 30,000 tonnes of ore and had arbitrarily raised land, power, water and labour costs.
The North then expelled Xiyang’s Chinese workers and later sold the iron ore, the Xiyang official said.
Stung by the Xiyang criticisms the investment authority statement on Wednesday said there would be more reforms to “ensure the legitimate rights and interests of all investors”.
But it also said that investment had to be in line with the “security of the country” which was guaranteed by its “Songun” or military-first ruling philosophy, promulgated by Kim Jong-il, the youngest Kim’s father, who died in December.
KCNA also announced there would be a rare second session this year of its rubber stamp parliament, which could mean the approval of more economic measures.
The North faces a difficult balancing act as any potential economic opening could undermine the leadership.
As recently as August, Jang Song-taek, Kim’s uncle visited Beijing to ask for new investment and to try to get China to agree to a state visit for the new leader.
China has so far not responded to the requests and the North’s attack on a company linked to the government of a Chinese state bordering North Korea could make Beijing think twice about relations with its neighbour which irritated its backer with its two nuclear tests and a failed rocket launch in April.
“Coming in the wake of a pretty unsatisfactory visit to China by Jang Song-taek, this is a very public message of excuse as well as pressure that shows it does not like being humiliated and that North Korea is not a vassal of China,” said Yoo Ho-yeol expert on North Korea at Korea University outside Seoul.