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North Korea: The Country That Never Pays You Back


"You don't get back to international credit markets by showing utter contempt for creditors," say experts.


What's Doing Business There Really Like?

Though North Korea legalized foreign investment in 1984, investors were "put off by the country's poor roads, railroads, power systems and phone networks and by official interference in joint ventures' recruitment, dismissal and compensation of workers," according to a 2000 thesis by Pilho Park, a postgraduate student at the University of Wisconsin Law School in Madison.

Today, nothing seems to have changed.

"At least when the Chinese say, 'This is going to be an investment zone,' they put in electricity and phone lines and sewers," Paul French, author of Korea, The Paranoid Peninsula, told the BBC in February. "The North Koreans just take some fields and say, 'This is going to be an investment zone' and expect it to look like Chicago in a few years."

But, what's it really like on the ground? What does one discuss over soju and gaejangguk with Pyongyangites?

In 2003, Thomas J. Payne, an American business consultant in Asia, posted a series of questions and answers aimed at potential investors in North Korea.

Payne explained that, the North Koreans "need just about everything," and "on a small scale, there are lots of micro-opportunities."

"For example, over the past few decades, they have imported used Japanese and even American automobiles from China," he continued. "They love Cadillacs. They are in great need of auto parts, and especially windshields for certain models. They want consumer goods in small packs like raisins, almonds, peanuts, cookies, crackers, and chocolates. All of the items which are sold in the hotel shops are, or will be, in demand in the future, especially when and if the political system changes.

As for daily life, Payne offered the following advice:

I have found a safe topic which everyone is interested and admirable: Professional Wrestling. Evidently when the Dear Leader is not hitting holes in one on the golf course or writing his voluminous books of wisdom, he keeping abreast of the World Wrestling Federation and World Championship Wrestling. I heard that they even had a world congress on professional wrestling at one time. It is a nice way to break the ice to ask about their feelings for the Undertaker, or Jake the Snake. But, really, you must be very careful to stay out of trouble. Know that you are always being watched or followed.

It's true. No, not the part about always being followed and watched, though that is certainly the case. The wrestling. North Koreans apparently love it. In 1995, a massive spectacle featuring American and Japanese pro wrestlers was mounted at Pyongyang's May Day stadium in front of 320,000 people.

One US attendee was less than impressed with his hosts.

"No wonder we hate these motherf**kers," he muttered, after they "started rambling on about the moral superiority of North Korea, and how they could take out the United States or Japan any time they wanted."

It was the first -- and last -- time former heavyweight champ Muhammad Ali would visit Pyongyang.

Will Things Actually Change?

In April, 2011, a delegation of North Korean economic envoys spent two weeks touring companies that "represent main strands of the US economy."

The group visited Google (GOOG), Home Depot (HD), Bloomberg LP, Citigroup (C), Qualcomm (QCOM), Sempra Energy (SRE), Union Bank, and Universal Studios, as well as a mushroom farm, a seafood wholesaler, and the Port of Los Angeles, where they leaned about trade infrastructure.

Henry Rowen, co-director of Stanford's Program on Regions of Innovation and Entrepreneurship, director emeritus of the Shorenstein Asia-Pacific Research Center, and a Senior Fellow at the Hoover Institution who gave a presentation to the North Koreans, told Minyanville that at the time that he knew "very little about the group and its mission," though he added a caveat that, "My hunch is that it was less significant than you suggest."

Others pointed out (off the record, of course) that the trip was merely the latest in a long line of empty gestures made prior to asking for international aid or political concessions. It has been the country's modus operandi for years; in 2007, political economist Nicholas Eberstadt described the "North Korean economic approach" as one that "has always been to extract resources from outsiders."

"It's like what they say about champagne," he said. "In success, you feel like you deserve it; in failure, you need it."

Leonid Petrov, PhD, a lecturer in Korean studies at the University of Sydney's School of Languages and Cultures, is anything but optimistic.

In an opinion piece carried in the June 22 Asia Times, Petrov wrote:

The North Korean leadership genuinely wants to modernize the economy but does not want to change its social and political life. Pyongyang is constantly searching for shortcuts that could boost its dysfunctional economy without having to conduct systemic reform. The new leader, despite of his young age, is surrounded by conservative older family members and elites who have no visionary plan for developing the country. Setting up tiny special economic zones ("SEZs"), which would generate foreign exchange without bringing about any change to the rest of the country, is a preferable way forward. As a result of this half-hearted policy, ordinary North Koreans will eat and dress better; they might even own personal computers and mobile phones. But they will continue to live in the same paranoid state of fear and dependency on the Great Leader's decisions.

Indeed, the Chinese partners who will primarily be ultilizing those SEZs have been getting stiffed by North Korea too.

"Most of the time, you couldn't get the money back," trader Wang Xuming told the Beijing Economic Observer in April. "They would only give you tens of thousands if they owed you millions."

Wang, incredibly, decided to take his protest to the streets. Here's reporter Chen Yong (translated from the Chinese by Song Chunling):

Unable to recover his debts, Wang tried join up with some other traders and petition at the government office, but they were surrounded by soldiers before they could hang up the banners. Later, when their requests were translated, they were taken to a small room, where an officer treated them to tea and said politely that they weren't allowed to hang a banner because it would have a bad influence. The official said he hoped that they wouldn't petition again and that their problem would be handled by the government.

Wang was sent to the hotel a few days later, given $15,000 and asked to leave the country.

"In North Korea, when they're using every means to avoid the debt, there's nothing you can do but leave," he said.

More hopeful, if only in a more macro sense, is Dr. Siegfried Hecker, former director of Los Alamos National Laboratory (1986-97) and current co-director of Stanford's Center for International Security and Cooperation.

Hecker, who has been granted access to North Korea's Yongbyon nuclear complex, told an audience about an experience he had during a visit to Pyongyang last year.

As Hecker entered a subway station in the capital city, he encountered a young man "wearing a backwards baseball cap with a Nike (NKE) swoosh."

"When he gets to be 21 years old, they're gonna have a hard time keeping him down on the farm," Hecker said.

"Where there is 'swoosh,' there is hope."

And where there is hope, there are investors. Of course, if those investors fail to materialize, the North Koreans do have other options -- such as manufacturing bogus US currency so flawlessly, they are said to be better than the real article and have been dubbed "Supernotes."

From the Congressional Research Service:

Although Pyongyang denies complicity in any counterfeiting operation, at least $45 million in such Supernotes thought to be of North Korean origin have been detected in circulation, and estimates are that the country has earned from $15 to $25 million per year over several years from counterfeiting.

Surely something for boy leader Kim Jong Un to consider. Because, after all -- who needs to go out peddling bonds when you've got cash?

No positions in stocks mentioned.
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