North Korea

Chinese investors seek new opportunities in North Korea, sanctions or not

But for entrepreneurs trying to get a head start in the hermit state, it remains an ‘extremely challenging place to invest’

PUBLISHED : Friday, 03 August, 2018, 10:30pm
UPDATED : Friday, 03 August, 2018, 10:30pm

Chinese investors are looking to North Korea for potential new business opportunities amid a diplomatic detente, as they try to get a head start before international sanctions are lifted.

Even though trade with North Korea is still largely blocked – sanctions remain in effect as the United Nations maintains pressure on Pyongyang to denuclearise – Chinese businesspeople say they are exploring the possibilities.

One Chinese businessman said he had been negotiating in North Korea in the past few months to try to secure potentially lucrative mining deals.

He expected to spend about 10 million yuan (US$1.46 million) on the mining equipment, and said Pyongyang’s recent rapprochement with Beijing and Washington was the main driver behind his decision.

“North Korea is rich in mineral resources and the prices now are relatively low because there are restrictions on exporting minerals,” said the businessman, speaking on condition of anonymity because the matter is sensitive.

“The approval process is not as complicated as it is in China, and we won’t have to pay the environment fee all at once.”

But he said the question of when the sanctions will be lifted was still the biggest concern for him and other Chinese investors.

“As long as the sanctions remain in place, it will be impossible to send products to China and I won’t be able to earn a penny,” he said.

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In a surprise move in April, North Korean leader Kim Jong-un said Pyongyang would shift policy to focus on developing the country’s backward economy rather than on nuclear arms as it had completed its weapons goals.

As the only ally and largest trading partner of North Korea, China has long said it would support the country’s economic development to improve living conditions, and economic cooperation has been high on the agenda during recent meetings between Kim and Chinese President Xi Jinping.

Chinese investors were among the first to start sniffing out the potential business opportunities in the North. Political advisers in Hunchun, a border town in northeastern Jilin province, in March suggested the local government step up efforts to establish a joint project in North Korea’s Rason Special Economic Zone to boost trade.

Set up in 1991, the special economic zone near the border with China and Russia is one of the earliest such programmes in North Korea and was designed to boost exports through foreign investment – mostly from its neighbours.

But little progress has been made since 2013, after Kim’s uncle, Jang Song-thaek, was executed after being accused of “selling off the land of the Rason economic and trade zone to a foreign country”.

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The special economic zone has since 2011 hosted an international trade fair – one of the biggest in the country – where companies from within the zone and other parts of North Korea and foreign businesspeople, mostly from China, promote their branding and sell household goods, from rice cookers to home electronics.

This year’s trade fair is expected to be busier than ever, according to Michael Spavor, director of Paektu Consulting, which specialises in matchmaking and advising on North Korea-related business and is organising a trip to the event this month.

“We are taking about six times more people to the Rason trade fair this year than previous years,” Spavor said. “While last year’s political situation could be described as fire and fury, this year’s situation is all about hugs and handshakes.

“If some sanctions are dropped, Chinese companies will definitely have the first crack at new investments, and trade opportunities.”

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But investing in North Korea, where the economic system remains vulnerable, was still risky, said Michael Kovrig, a senior adviser with International Crisis Group.

“North Korea’s underdeveloped business environment, high degree of political interference and lack of infrastructure makes it an extremely challenging place to invest, and not easy for trade either,” Kovrig said. “Even if the sanctions are scaled back to allow more forms of trade or investment, without state backing, relatively few foreign enterprises will be willing to take the risk.”