Wednesday, September 05, 2012

North Korea launches unusual attack on Chinese investor

By David Chance

SEOUL (Reuters) - North Korea launched a blistering, and extremely rare, attack on a Chinese company that had accused it of corruption and fraud in a major investment in the reclusive state, saying it was the Xiyang Group that had reneged on the deal.

The statement, carried on Wednesday by the North Korean state news agency KCNA, comes at a sensitive time for the North which is looking to ally China to help it repair its broken economy, with new leader Kim Jong-un seeking a state visit to Beijing to make his case for more investment.

Xiyang Group took to the Internet to describe its investment in an iron-ore powder venture as "a nightmare" and said that the North had violated its own investment laws.

"It (Xiyang) has carried out only 50 percent of its investment obligations though almost four years have passed since the contract took effect," KCNA quoted a spokesman for its Commission for Joint Venture and Investment as saying.

North Korea almost never criticises its neighbour or any Chinese entities in public. The KCNA article said that the Xiyang comments had been whipped up by "hostile forces" in an orchestrated media campaign to blacken the isolated state's name.

A Xiyang official told Reuters earlier that it had signed up for a 75 percent stake valued at 36 million euros ($45 million)in a 10 million tonne a year iron ore processing plant.

It started producing in April 2011 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.

North Korea's special economic zones are governed by a patchwork of laws and have so far failed to attract large amounts of Chinese investment into a country that has been hit with international sanctions after its nuclear tests in 2006 and 2009.

HUGE POTENTIAL IN NORTH, POOR LAWS

The country sits on significant deposits of coal, iron ore, uranium, and gold and has substantial reserves of rare earths. But a rickety infrastructure and uncertain laws deters investors.

Between 2003 and 2009, Chinese investment in North Korea stood at $98.3 million, just 12 percent of the amount Chinese firms have invested in South Korea, according to Chinese data cited in a 2011 report by Drew Thompson, a Korea specialist who now works at the U.S. Department of Defense.

Jang Song-taek, the uncle of North Korea's new ruler visited Beijing last month to ask for new investment and to try to get China to agree to a state visit for Kim, who has ruled the North since the death of his father.

The third Kim to rule North Korea has demonstrated a more open style than his reclusive father, but it remains to be seen whether he can improve living standards in a country that a recent United Nations report said had an economy smaller than it was 20 years ago.

"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.

Based on 2011 data, and excluding the North's trade with South Korea, China accounts for 89 percent of North Korea's trade.

The North Korean statement on KCNA said pledged reforms to "ensure the legitimate rights and interests of all investors" but 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.

The military first philosophy was developed by Kim Jong-un's father and is widely criticised outside North Korea for further impoverishing the country with its massive spending on the military and the pursuit of nuclear weapons.

($1 = 0.7961 euros)

(Additional reporting by Polly Yam in Hong Kong; Editing by Jonathan Thatcher)

News

Wednesday, September 05, 2012

North Korea launches unusual attack on Chinese investor

By David Chance