NORTH KOREAN "NEOVIAGRA," MINERALS AND

C O N F I D E N T I A L SECTION 01 OF 02 SHENYANG 000133

SIPDIS

SIPDIS

DEPARTMENT FOR INR, EAP/CM, EAP/K

E.O. 12958: DECL: TEN YEARS AFTER KOREAN UNIFICATION
TAGS: PREL PINR PGOV ECON KN KS CH
SUBJECT: NORTH KOREAN "NEOVIAGRA," MINERALS AND
DIFFICULTIES IN PRC-DPRK PARTNERSHIPS


SHENYANG 00000133 001.2 OF 002


Classified By: CONSUL GENERAL STEPHEN B. WICKMAN.
REASONS: 1.4(b)/(d).


1. (C) SUMMARY: A visit to Dandong's second DPRK Import-
Export Commodity Fair in late June highlighted China's
interest in North Korean natural resources and the
comparatively low wage rates on the North Korean side of
the border. But contacts point out that further down the
proverbial line, the success rate of joint Sino-North
Korean projects can actually be rather low--near twenty
percent in the experience of one trade facilitator.
Chinese entrepreneurs and go-betweens, moreover, sometimes
blame their North Korean counterparts for the failure of
projects that the Chinese party has entered in bad faith,
hoping to shop them around to other parties for a quick
profit. END SUMMARY.

A MICROCOSM OF PRC-DPRK TRADE: "NEOVIAGRA" TO IRON ORE
-------------- --------------


2. (C) Poloff on a June 26 visit to Dandong attended the
opening day of the second DPRK Import-Export Commodity
Fair, hosted by the Panjin Asia-Pacific Procurement/Bidding
Company, a private Liaoning firm specializing in PRC-DPRK
trade facilitation. Showcasing over twenty North Korean
state-owned enterprises (SOEs) and close to ten private
Chinese firms, the modest affair ventured to match North
Korean exhibitors with prospective joint-venture partners
and/or buyers from the several hundred Chinese business
representatives--mostly from small- and medium-sized
enterprises--that attended.


3. (U) Small-business representatives, many from Dandong
and its environs, appeared to greet the majority of DPRK
exhibitors--who touted everything from beauty/health goods
and seafood products to apparel/shoes, handicrafts and
jewelry--with modest interest. Some of the more unusual
offerings on display included North Korean "NeoViagra" (RMB
40, or USD 5 per box) and an apparently miraculous health
supplement specifically for cirrhosis, hepatitis, ulcers
and "poor nutrition for children." More mystifying to many
attendees was a collection of North Korean "polarized light
rings," which for RMB 400 (USD 52) promised to clean the
blood, reduce headaches and regularize blood pressure.


4. (C) The fair's main attraction--this, clearly for
larger, more serious Chinese firms--seemed to be the North
Korean purveyors of sundry raw or processed minerals and
related finished products. These ranged from iron ore
(displayed in small, glass jars),titanium and magnetite to
pig iron, ferrosilicon and hot-rolled steel plates. The
heavyweight here was the North Korea Ferrous Metals Import-
Export Corporation, according to Panjin Asia-Pacific's
manager, LIU Feng (strictly protect),who organized the
event. A surprising number of Chinese representatives
flocked to and lingered at the corporation's booth,
chatting with North Korean representatives who pulled out
and offered interested Chinese representatives glossy,
professional-looking catalogues, product samples, photos
and promotional literature.


5. (C) North Korean exhibitors paid between RMB 3000-5000
(USD 400-650) per booth for all four days of the fair,
according to Liu, who noted the appreciable growth in the
scope of products and the number of participants over last
year. Liu expected that the North Korean exhibitors would
ink a number of agreements with Chinese companies by the
closing day (June 29),although some projects would
eventually not be carried out, as Liu said happened last
year. The benefits of low labor costs are a particular
driver for the small- and medium-size Chinese firms
attending the event, according to Liu, who travels to the
DPRK on a monthly basis. He claimed that the average
salary for a North Korean worker on projects he has
facilitated ranges from about RMB 20-30 (USD 2.6-4) per
month. The same worker's salary in northeast China would
cost RMB 700-800 (USD 92-105) per month, he said.

DIFFICULTIES IN PRC-DPRK COOPERATION: AN ALTERNATIVE TAKE
-------------- --------------


6. (C) A recurring (though hardly dominant) theme in our

SHENYANG 00000133 002.2 OF 002


discussions with contacts like Liu Feng is the uncertain
success rate of PRC-DPRK projects, a good percentage of
which are never actually carried out. Chinese businessmen
typically blame their North Korean partners for this,
citing their lack of credibility and unwillingness to honor
contracts; the substantial risks involved in operating in
North Korea; cumbersome bureaucratic hurdles; and a long
litany of other, familiar shortcomings.


7. (C) There are some exceptions, however, like the views
of LIU Chensheng (strictly protect),a former Shenyang
trade official who facilitates PRC investment under the
aegis of the Korean Liaison Office of the Liaoning Province
Civilian Entrepreneur Association. Liu, who visits the
DPRK once or twice per month and regularly hosts North
Korean business delegations in China, told Poloff on May 31
that unscrupulous Chinese businessmen are sometimes also at
fault. Liu explained that, once approved by Pyongyang,
joint PRC-DPRK projects are typically "assigned" to local
governments who then have to directly hammer out the
details with the Chinese businesses involved. Some Chinese
businessmen Liu said he has encountered negotiate with
local DPRK officials without ever intending to invest:
rather, agreement in hand, they attempt to sell the
participation rights to other Chinese for a profit. It is
at this stage, Liu contended, that the ventures tend to
fall through, the original "partner" blaming the DPRK for
"not honoring its contract."


8. (C) Liu Chensheng estimates that the success rate of
ventures he has facilitated is low, perhaps twenty percent.
Given this track record and thanks to the advice of a
friend in the Korean Workers' Party Central Committee, he
claims he has learned to terminate his involvement once he
has linked the interested parties together. This way he
claims he can avoid having dissatisfied partners on either
side of the border blame him for any subsequent
difficulties.


9. (C) NOTE: Liu, as a booster for PRC-DPRK trade, is
generally quite sunny about operating in the DPRK, one
possible reason why he may have put more of the blame for
certain unfulfilled PRC-DPRK ventures on the side of self-
serving Chinese businessmen. He is quick to admit,
however, the significant risks confronting PRC investors in
the DPRK, highlighting the range of variables (and the
behaviors of officials) in North Korea that create a less-
than-ideal investment climate. END NOTE.
WICKMAN