N Korean capitalist runs afoul of Beijing

By CHRISTIAN WADE, UPI Business Correspondent  |  Oct. 7, 2002 at 1:01 PM
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SHANGHAI, Oct. 7 (UPI) -- From the beginning, the whole thing seemed just too bizarre to be true: A Chinese-born Dutch tycoon, given the task of introducing capitalism to the world's last communist economy and given a post in the North Korean government, proclaiming the Stalinist state was open for business.

That is precisely what Yang Bin, a jovial businessman who made his fortune exporting orchids, had done when he invited foreign reporters to a news conference in the northern China city of Shenyang last Thursday -- just hours before he was arrested by authorities for suspected illegal business activities.

Yang had been handpicked by North Korean leader Kim Jong Il to introduce a dose of capitalism to North Korea's border region with China by overseeing the creation of the Sinuiju Special Administrative Region.

Plans to create the new special economic zone had been unveiled several weeks before by North Korea's legislative People's Assembly, the nation's decision-making body, in a historic change of policy.

Last week, Yang said the plans included building a wall around the city of Sinuiju so that potential foreign investors could visit the site without having access to the rest of the isolated heartland of North Korea.

The North Koreans had agreed to allow foreigners to hold administrative posts in the new economic zone and U.S. dollars would be used as currency in the soon-to-be walled metropolis, Yang told reporters.

Then, in a move that irked North Korean officials, he declared that foreigners, including journalists, would be able to cross over the Yalu river from China into North Korea to tour the economic zone without visas.

That promise never materialized, and groups of foreign and South Korean journalists attempting to enter the reclusive region last Monday were turned away by both Chinese and North Korean border authorities.

As it turns out, North Korea's bold new experiment with capitalism has run afoul of authorities in Beijing.

First of all, Yang had announced plans for the park without the approval of the Chinese government, and officials are less than pleased with his self-appointed role as a de facto envoy between the two countries.

"He failed to notify the relevant departments about his intentions to accept this position," an official with China's Foreign Ministry in Beijing, who did not wish to be identified, told United Press International.

The official said the North Korean government had also not informed Beijing that they had recruited Yang.

The 39-year-old magnate, who was named China's second-richest man by Forbes magazine last year, is now being held under house arrest pending an investigation into his financial transactions and project's future -- which ultimately hinges on the Chinese government's approval -- remains, at best, uncertain.

China, despite efforts to encourage its North Korean neighbor to follow its lead in economic reforms, has not said whether it would provide the necessary investment and infrastructural support for the project.

Sinuiju has no electrical power and would be forced to buy electricity from the Chinese city of Dandong, which is located just across the Yalu river from the North Korean enclave, industry sources said.

There's also the matter of the project manager's credibility. For months, rumors have been circulating that Yang was under investigation by officials for tax evasion and that his firm had serious financial difficulties.

He owes more than 10 million yuan ($ 1.2 million) in unpaid real estate taxes, officials have claimed.

In recent weeks, Yang has sold more than 50 percent of his stake in the company he controlled, Euro-Asia Agricultural (Holdings), and the Hong Kong Stock Exchange has twice suspended trading of shares in the firm.

Still, Yang remains confident, telling journalists attending last week's press conference that the project will move ahead despite the obstacles of government interference and his businesses' financial problems.

"You guys should give me some more time," Yang was quoted as saying last Friday by the Singapore-based Straits Times newspaper. '"You've been waiting for 50 years. You can give me a few more days."

Observers say Beijing's rigid insistence that all matters of international business involving the state should be dealt with through official government channels will prove a major obstacle for the project's planners.

"It seems that Yang has stepped on someone's toes in Beijing," said a Western diplomat in Shanghai. "The government is apparently not pleased with the fact that he's taken the bull by the horns on this one."

Despite official talk of economic development, China's leaders still remain deeply distrustful of the rising power of the nation's wealthy entrepreneurs, which they view as a threat to Communist party rule.

South Korea's Yonhap news agency reported on Sunday that China had dispatched a vice-minister-level official to North Korea to clarify Beijing's position.

Politically isolated, North Korea has been looking to Beijing over the past year for guidance in reforming its system of centralized state planning, which has driven the nation to the brink of economic collapse.

Pyongyang sees a ready model in the southern Chinese boomtown of Shenzhen, an economic zone built in the mid-1980s by the late leader Deng Xiaopeng that has served as a magnet for foreign investment.

Last January, North Korean leader Kim toured Shenzhen and Shanghai, the nation's financial center and a symbol of rising economic prowess, in a highly secretive visit to China that was not publicly disclosed.

North Korea has reportedly sent scores of economic advisers to the United States, Australia, Singapore and other major capitalist countries to study the systems of market economies over the past three years.

Foreign investment in North Korea has so far been restricted to a handful of industrial parks, including the decade-old Rajin-Sonbong free-trade zone, which has so far failed to attract enough foreign investors.

Some analysts suggest that North Korean leader Kim Jong-Il might not be as genuine in his aspirations to open the nation's markets to foreign investors as the Chinese government has become in recent years.

"There is a question of whether North Korea is really serious about capitalist-style reforms or if Kim Jon-Il is just looking for a cash register to keep the government afloat," said Andrew Cheung, a Shanghai-based private management consultant. "Of course, such questions were posed when China first established the special economic zone in Shenzhen, a move which eventually paved the way for nationwide reforms."

Serious political, not just economic reforms, would be required to make the system work, Cheung said.

"Pyongyang needs to improve the country's overall economic outlook, otherwise the industrial zones will fail to attract foreign investors," he said. "We are a long way from that stage though, as it would seem."

Meanwhile, South Korea has also thrown a hat into the ring, announcing plans to create a "springboard" industrial complex in Dandong to assist with the financing and planning for the Sinuiju economic zone.

In Dandong, at least 200 South Korean enterprises have already set up business offices in an attempt to secure a foothold in North Korea's markets, government trade officials in Seoul said recently.

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