VZCZCXRO2377
RR RUEHCN RUEHGH RUEHVC
DE RUEHSH #0219/01 3552333
ZNY CCCCC ZZH
R 212333Z DEC 09
FM AMCONSUL SHENYANG
TO RUEHC/SECSTATE WASHDC 8938
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEAIIA/CIA WASHDC 0235
RHMFISS/COMUSKOREA J2 SEOUL KOR
RUEKJCS/DIA WASHDC 0184
RHHJJAA/JICPAC PEARL HARBOR HI 0085
RUCGEVC/JOINT STAFF WASHDC 0130
RHEHAAA/NSC WASHDC
RUEKJCS/SECDEF WASHDC 0188

C O N F I D E N T I A L SECTION 01 OF 03 SHENYANG 000219 
 
SIPDIS 
 
DEPARTMENT FOR EAP/K, EAP/CM, INR 
MOSCOW PASS TO VLADIVOSTOK 
 
E.O. 12958: DECL: TEN YEARS AFTER KOREAN UNIFICATION 
TAGS: CH ECON EFIN EIND EMIN ETRD KN KS PGOV PREL RS
SUBJECT: CHINESE INVESTMENT IN NORTH KOREA: VIEWS FROM THE 
BORDER 
 
REF: A. SHENYANG 167 
     ¶B. SHENYANG 170 
     ¶C. SHENYANG 92 
     ¶D. SHENYANG 164 
     ¶E. SEOUL 1866 
     ¶F. SHENYANG 185 
 
Classified By: Consul General Stephen B. Wickman.  Reasons 1.4(b/d). 
 
¶1. (C) SUMMARY: Chinese investment in North Korea appears to 
be a largely state-directed affair, supporting government 
objectives to engage in resource diplomacy.  Chinese 
businesses consider business in North Korea to be 
unprofitable, are wary of entering the market, and will only 
do so with Chinese governmental support or strong personal 
ties.  Legitimate DPRK investments in China are largely 
limited to the service industry, but DPRK trade delegations 
are more active today than in recent memory.  Border trade 
and tourism shutdowns in the winter are annual and regular 
events.  END SUMMARY. 
 
¶2. (U) ConGenOff traveled to Dandong City in Liaoning 
Province November 24-25 and Jilin Province's Yanbian Korean 
Autonomous Prefecture and Mudanjiang City in Heilongjiang 
Province December 6-15 to meet local contacts. 
 
HOW THE CHINESE INVEST IN NORTH KOREA 
------------------------------------- 
 
¶3. (C) A Sino-Korean trader and native of Dandong told us 
that there are two ways for Chinese entities to initiate 
investment in North Korea.  One was to contact the Chinese 
Embassy in Pyongyang and work through the DPRK Trade 
Ministry.  The other was for Sino-Koreans to contact the 
North Korean Veterans Committee's economic outreach section 
or other unification-affiliated organization as overseas 
Koreans or as individuals having personal or family 
contacts.  The DPRK side would collect the inquiry and 
decide, in consultation with relevant organs, to assign an 
appropriate investment project. 
 
¶4. (C) To date, the safest and most successful investments 
for Chinese are in minerals and the procurement of state 
goods -- i.e., in the import-export trading companies that 
bring in items desired by the North Korean elite.  Risky as 
they are, in the overall hierarchy of risky North Korean 
investments, these were the best bets.  Sino-Korean-run 
business is almost exclusively trade-related with little 
investment.  Han Chinese businessmen, who now dominate the 
Dandong channel, are equally dependant upon trade and avoid 
investment.  Our contact said the only major Chinese 
investment in the DPRK is largely a state-to-state endeavor 
or sometimes pursued by people with strong personal networks. 
 
¶5. (C) Our contact said that the Sino-Korean Traders' 
Association in Dandong had recently made a big breakthrough, 
establishing in the last month an unprecedented and 
ambitious joint-holding company with shares to invest in 
North Korea -- each share pegged at RMB 500,000 (USD 
73,200).  To date, the holding company had gathered more 
than ten shareholders.  As the terms stood, the DPRK side 
was offering a total guarantee on the maintenance of the 
original capital investment, with no caveats.  He said that 
because each of the shareholders was a Sino-Korean trader 
having a good reputation in the DPRK and China, the DPRK 
side would find it near impossible to swindle the 
shareholders because of potential fallout via negative 
publicity.  He was confident that this deal was the next 
best thing to a guaranteed profit. 
 
CHINESE GOVERNMENT: SUPPORTS RESOURCE DIPLOMACY 
--------------------------------------------- -- 
 
¶6. (C) A Sino-Korean trader in Yanji told us that his 
company, which had long forsaken trade with North Korea due 
to its unprofitability, was going to re-enter the market 
with the support of the Chinese government.  He said that 
the Jilin Provincial Government had recently asked him to 
look into re-opening the Sanhe-Hoeryong Warehouse that his 
company held the option on, in anticipation of ramped-up 
trade.  He said the provincial capital told him it would 
 
SHENYANG 00000219  002 OF 003 
 
 
direct national-level resources to resurrecting this 
project.  The trader suspected that this renewed push was 
spurred by the Chang-Ji-Tu project (Ref A) and also linked 
to Wen Jiabao's October visit to Pyongyang.  Most 
importantly, it was part of a Chinese national-level goal to 
engage in resource diplomacy with North Korea.  As a result, 
his company, which had given up on DPRK business for the 
last five years, is now looking to North Korea. 
 
¶7. (C) Our Dandong contact said that the Chinese government 
was fully aware of and condoned unofficial (read: illegal) 
trade interactions, business networks, and channels for 
transferring capital (Ref B).  However, he said the Chinese 
authorities will refuse to advocate for any investors who 
did not pre-register their business activities with the 
appropriate local Chinese external economics and trade 
bureau.  A Longjing-based Sino-Korean trader who visits 
North Korea several times per week repeated this rule, 
saying she had once considered investing in the DPRK but 
that rules stipulated that one had to go through the Chinese 
Ministry of Finance and Commerce to register one's intent, 
which she did not want to do. 
 
¶8. (C) Echoing our Yanji contact's views on the importance 
of minerals, our Dandong contact said one of the most 
frequent trade and barter items handed over by the North 
Koreans is minerals.  To guarantee the maintenance of 
investment capital, DPRK organizations simply compensate the 
Chinese side with minerals rather than RMB or hard 
currency.  Coal is said to be the prime target for Chinese 
traders, even though our contact said North Korea's total 
proven reserves were only about 4 billion tons, sufficient 
only to the entire Chinese economy for a little over a 
year.  Other strategic rare earth metals are also bartered 
this way, but our contact said coal and iron seem to hold 
little future. 
 
¶9. (C) The North Korean authorities seem apprehensive about 
the amounts of minerals flowing out to China, and our 
contact said that the DPRK has issued a notice prohibiting 
the free, unregulated export of coal, which is most 
frequently used in trade and barter deals. As a result, he 
said it appears that the outflow has been reduced.  The flow 
of other strategic rare earth metals seems unchanged, 
according to our contact. 
 
CHINESE RELUCTANCE TO INVEST IN NORTH KOREA 
------------------------------------------- 
 
¶10. (C) One of Heilongjiang Province's ten wealthiest 
businessmen, a Sino-Korean trader from Mudanjiang, said that 
DPRK officials continually visit him in Mudanjiang to ask 
for investment.  Like the Yanji-based trader above and 
numerous other businessmen in Northeast China, however, this 
businessman sees investing in the DPRK as unprofitable and 
refuses to do so (Ref C).  He would rather just stay 
"friends," so he restricts his "investments" to "donations" 
of money and equipment to the North Korean people, and 
prominently displays a picture of him with Korean Workers' 
Party Secretary Kim Ki-nam, whom he calls his "friend."  He 
says that in the past, USD 500 put into a bureaucrat's 
pocket would make that person a "friend for life." 
 
¶11. (C) A Sino-Korean businessman in Tumen had a similar 
story about buying gratitude with greenbacks.  He recounted 
that about ten years earlier, returning from visiting 
relatives in North Korea on a train, he met a young man whom 
he pegged to be a member of the elite.  After befriending 
the young man, our contact ended up sending USD 10,000 to 
aid a village project that the young man was promoting. 
Soon thereafter, the young man repaid him and subsequently 
looked him up again a few years later after having achieved 
a high position in the DPRK bureaucracy.  A Tianjin-based 
Sino-Korean trader running mines in North Korea says his 
reasons for investing in North Korea are simple.  He is 
"looking towards the future" but is actually investing "out 
of sympathy for the North Korean people."  He called his 
current operation a "money pit" and joined all of our 
contacts in agreeing that without Chinese government 
support, business in North Korea was unpredictable, 
unreliable, and generally difficult to the point of 
 
SHENYANG 00000219  003 OF 003 
 
 
discouraging business. 
 
DPRK: LOOKING FOR CHINESE FOREIGN DIRECT INVESTMENT 
--------------------------------------------- ------ 
 
¶12. (C) Our Dandong contact was only aware of two DPRK 
investments in Dandong over the last 10 years.  Two food 
processing plants, producing kimchi, have been in various 
states of disrepair and were not particularly profitable. 
He said that in China, the DPRK seemed to be more interested 
in trade than in investment, even though many cities 
throughout Northeast China sport joint-venture restaurants, 
hotels, and the occasional factory. 
 
¶13. (C) Our contact said there seemed to be more North 
Korean delegations and representatives in Northeast China 
drumming up trade and investment than in his recent memory. 
He told us that two very large North Korean trade 
delegations had visited Dandong this year with the dual 
goals of promoting trade and attracting foreign direct 
investment (FDI).  He said the FDI component was a notable 
change from the past (Refs D and E give further evidence of 
this change.) 
 
¶14. (C) Yanbian University FAO Director, Sino-Korean Liu 
Mingzhu, said that as a result of the successful Tumen River 
Development Conference in August (Ref F), Yanbian University 
was hosting some North Korean Academy of Social Sciences 
(NKASS) researchers working on a plan to further develop 
additional port berths at Rason.  These are in addition to 
and separate from the Wen Jiabao deals to lease Piers 3 and 
4 at Rason.  Yanbian University's Dean of the Agricultural 
College, Sino-Korean Yan Changguo, said that his school 
enjoys good relations with several North Korean institutions 
but that the North Koreans are relentless in their requests 
for financial assistance. 
 
¶15. (C) (NOTE: ConGenOff noticed an unusually visible DPRK 
presence in Yanbian on this latest visit, unexpectedly 
running into three separate North Korean parties at 
different restaurants.  One was a North Hamgyong Province 
Saetbyol County trade delegation that our Longjing contact 
identified and had met with earlier in the day on December 
¶9.  On the other two parties, ConGenOff could not tell 
exactly where they were from, but suspect that one group of 
two, flanked by Han Chinese professors, were from NKASS. 
All seemed to be spending a decent amount of money and 
moving about very visibly.  A Yanbian University junior 
lecturer said many North Korean students studied at his 
institution and that even more who were dependants of North 
Koreans on official duty in China were studying at local 
middle and high schools.  The students on campus met 
regularly on Saturday mornings for political education and 
generally stayed away from other students.  This 
conversation took place before reports surfaced of a DPRK 
recall of citizens working or studying in China but suggests 
that such a recall, if confirmed, would be extremely 
difficult.  END NOTE.) 
 
BORDER SHUTDOWNS IN WINTER: REGULAR AND EXPECTED 
--------------------------------------------- --- 
 
¶16. (C) January is a blank spot in the PRC-DPRK trade 
calendar as it is the period, in theory, when the North 
Koreans stop all formal border trade for at least three 
weeks to rebalance their books and assess the status of 
their planned economy before the lunar New Year.  In 
practice, the period represents a time of mutual desperation 
on both sides of the border for buyers and sellers alike, 
for those aiming to unload stale product and also for those 
trying to take advantage of spiking prices.  Our Dandong 
contact said that for a bribe of USD 500-600 per truckload, 
the North Koreans would open up the bridge at night during 
this shutdown period and wave in a shipment or two and 
release some goods as well.  This annual winter shutdown is 
a prominent event in the trading almanac and one that plays 
a central role in planning inventory and managing 
stockpiles. 
 
WICKMAN