BEIJING - Investing in North Korea is becoming a hot topic among Chinese businessmen. Over the last few weeks, a series of business events and investment conferences about North Korea have been held.
Chen Jiangfeng, a real-estate developer from Beijing was one of the 150 plus entrepreneurs who attended the investment projects fair held at the GBD Public Diplomacy & Culture Exchange Center at the end of September. For him, “North Korea’s economic opening up is on everyone's mind," he says.
Chen believes the market prospects are better across the border than in any of China’s central or western provinces. "Though," he concedes, "the high profits will be coupled with high risks.”
Still, Yin Hengzi, Director of the Joint-Venture & Investment Commission (JVIC), a platform set up by the North Korean government to attract foreign investment, told the conference that this was the first such event in China ever focused specifically on North Korean business opportunities -- with a similar gathering to be organized again together with China’s Ministry of Commerce before the end of this year.
The JVIC is responsible for drawing up preferential policies, enhancing the opportunities for seeking out investment, as well as improving the investment environment.
Yours and mines
It’s not a secret that doing business in North Korea is full of uncertainty. Even the North Korean officials do not deny this, though they also emphasize the advantages, such as cheap labor and a unique management environment.
But what most tempts Chinese businessmen about North Korea is the mining. At every event, the first question of these entrepreneurs was typically the same: “Is there gold ore?”
Chang, a Beijing miner, told the Economic Observer that though his company would certainly take great caution before investing North Korea, the particularly rich mining resources is too big a temptation to ignore.
An agreement was signed in September between the Chinese Overseas Investment Federation and the JVIC so as to jointly launch the “Special Funds for North Korea Investments,” backed by 3 billion RMB ($480 million) from China’s domestic fund institutions and consortia.
North Korea is eager to start working with more international partners, and has also signed deals with investors from Egypt, Russia and other countries to provide it with communication projects.
Kim Tiezheng, the Vice-Chairman of the JVIC pointed out that North Korea needs significant capital investment in infrastructure construction in telecommunications, transport, commodity markets, power plants, and cement factories. Not only will these investments be particularly welcome and supported by the government, the investors will also enjoy preferential treatment over the enterprise income tax, as well as tariff exemption in business equipment and raw materials import.
At the same time, the Chinese Ministry of Commerce and North Korea’s investment-seeking arm also held a joint Investment Explanation Session in Beijing to promote the Rason Special Economic Zone, as well as the Hwanggumpyong and Wihwa Islands Joint Free Trade Area, established between China and North Korea in 2010.
Chen Jian, the Chinese Vice Minister of Commerce, said that the RMB and the Korean yuan will be circulated in these two special economic zones with the establishment of the two countries’ banking institutions to meet the settlement needs of investors.
The Rason Economic Zone, located at the extreme northeast of the Korean Peninsula, near the borders of both Russia and China, will focus in developing six industries in the raw material, equipment and high-tech sectors. The Hwanggumpyong and Wihwa Islands Joint Free Trade Area will focus on IT, modern agriculture facilities, tourism, culture, creative industries, and garment processing factories.
Chen Jian pointed out that the collaboration has up to now progressed smoothly. China has also helped to train 300 North Korea managerial staff in the special zones.
Promises and incentives
Li Tieshi, the Vice Chairman of the People’s Committee of Rason, said the investment incentive measures include the duty-free import and export of goods, the free expatriation of profits from the business operation, and various corporate income tax reductions. “The investors will have the final say whatever happens,” Li said, “Whether it’s a joint-venture, a cooperation or if the business is wholly-owned by the investors, the foreign investors can choose their own mode of management and operation.”
In addition, those who invest in the state-encouraged industries can enjoy priority in leasing better land plots as well as preferential land rental.
Dr. Moustapha Saphariny, Chairman of China & Southeast Asia Investment & Economic Development Committee, who also works with the Arab Information Center in Beijing, said North Korea’s newfound eagerness to do global business is a good sign to the outside world. Not only can China benefit from this opportunity, it can also ease the economic sanctions that the international community has placed on North Korea.
“North Korea is obliged to open up. Even Kim Jong-il was already frequently visiting China to learn about its reforms. It’s an inevitable path for North Korea," said Saphariny. "This is the only way that the North Korean society can be stabilized and its people’s lives can improve."
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