China and the WorldAugust 31, 2012

Kimboozled

Mining boss says North Koreans don’t play fair

The expectation of bribes, having to foot the bill for interminable banquets with officials, worthless contracts and – ultimately – the expropriation of your assets by your local partners.

For most, the list would be more than enough to put an end to any consideration of doing business with the North Koreans. And that’s before you’ve even considered all the speeches that would be required to mark the florid achievements of Kim Jong-un, the latest superhero from the Kim dynasty.

But the signs are that some Chinese businessmen have been ready to persevere. Cynics might suggest that this is because they aren’t entirely unfamiliar with the treatment meted out by their Korean hosts, despite dealing with a country where Chinese businesses should – in theory – enjoy most favoured status. Pyongyang doesn’t have many backers, after all.

But for all their supposed advantages with the regime, there is also a sense of the tables having been turned in North Korea, as Chinese companies venture into a market far less developed and far more volatile than their own.

This month the Xiyang Group, a leading mining and fertiliser company, took the unusual step of going public with its own cautionary tale of doing business in a socialist paradise (a real one) which culminated in one of its employees being forced out of the country at gunpoint in the middle of the night.

In an emotional essay, Xiyang’s founder Zhou Furen detailed how his company bought a 75% stake in an iron ore mine on North Korea’s west coast, built a $30 million processing plant and was then frozen out of its asset.

After being prevented from selling its ore or operating the plant because of “new environmental laws”, the asset was then seized by armed police.

“At 2am on March 2 the remaining Chinese personnel were rounded up and told that the project had been cancelled by order of the North Korean prime minister and that they must leave immediately or be treated as enemies,” Zhou wrote on his verified weibo account.

“Doing business in North Korea is a nightmare. Our employees were lucky to escape with their lives,” he added.

Zhou went on to complain about the lack of legal recourse, as well as difficulties of doing business in a country where polices change overnight.

WiC can imagine that this might raise a smile for a few of its readers from multinational companies with operations in China.

But Zhou’s full wrath was saved for an individual surnamed Ri, North Korea’s “corrupt” point man in the deal. Zhou opted for a stream of playground invective. “He has a fat head, an idiot’s belly and big ears. He is the fattest guy in all of North Korea,” he spat.

He then described how Ri had demanded – and received – kickbacks and gifts totalling more than $1 million. “If we refused to provide women they would just get them themselves or put it on the hotel bill, which we had to pay for,” he lamented.

The Xiyang boss ends his essay with an appeal for Chinese companies to boycott North Korea. “We entered the dragon’s lair when we went into North Korea. Other companies should learn from our mistake,” he suggests.

More specifically, Zhou’s comments may dampen some of the Chinese enthusiasm for further investment in North Korea, at a time when there are signs that Pyongyang may finally be ready to consider the economic reforms that Beijing has long lobbied for.

Earlier this month Kim Jong-un’s uncle Jang Song-thaek visited Beijing to discuss (among other things) the construction of roads and power supply for two new special economic zones across the border in North Korea. And if Reuters is correct, Kim Jong-un wants to visit Beijing himself in September for his first official trip abroad since becoming leader. Could closer commercial ties be on the agenda? No doubt Xiyang’s Zhou will have a few words of advice for the North Korean visitors…

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