DPRK CONFIDENT BUT ANXIOUS; PRC ENVOYS; INFORMAL

C O N F I D E N T I A L SECTION 01 OF 03 SHENYANG 000170

SIPDIS

DEPARTMENT FOR EAP/K, EAP/CM, INR
MOSCOW PASS TO VLADIVOSTOK

E.O. 12958: DECL: TEN YEARS AFTER KOREAN UNIFICATION
TAGS: CH ECON EFIN EMIN ETRD KN KS PARM PREL
SUBJECT: DPRK CONFIDENT BUT ANXIOUS; PRC ENVOYS; INFORMAL
ECONOMY

REF: A. SHENYANG 161

B. SEOUL 1468

Classified By: Consul General Stephen B. Wickman. Reasons 1.4(b/d).


1. (C) SUMMARY: A new consulate contact who has
extensive experience in North Korea believes the
DPRK's "charm offensive" is the result of
newfound confidence stemming from its missile
launch and nuclear test. North Korea feels
economically and politically dominated by China,
so it is anxious to rope in the United States to
balance Chinese influence. Against this
backdrop, he believes the recent and upcoming
high-level Chinese envoy visits to Pyongyang are
principally to remind the North Koreans about
the rules of engagement with the United States.
He reports that the DPRK economy's main weakness
is not a lack of income, but a lack of goods for
consumers to purchase. END SUMMARY.


2. (C) On September 22, ConGenOff met with a
Sino-Korean mine operator who has been working
with North Korea for the last decade. He is a
frequent traveler to various sites on the Yellow
Sea (western) side of North Korea and maintains
regular contact with DPRK officials and
businessmen. His most recent visit to the DPRK
was in June 2009. Our contact is a 1986 Beijing
University chemical engineering graduate from
the Yanbian Korean Autonomous Prefecture who
started out his mining career in Gansu Province.
He began at a state-owned enterprise and then
moved into the business of snapping up
unprofitable mining enterprises and "flipping"
them to other buyers, dabbling also in real
estate. He has spent most of his time in Gansu,
Liaoning, and North Korea, and has made recent
forays into Southeast Asia.


3. (C) Although this was our first meeting and
much of the below is his personal opinion, his
views seem to be formed on the basis of many
conversations with many North Koreans over many
years. Our contact is not an expert in PRC-DPRK
affairs but simply analyzes current events
through the prism of his collective experiences
working with North Koreans. His commentary may
be seen as a proxy or mouthpiece for the DPRK
contacts he deals with and tracks with what
other consulate contacts have shared in the
past.

DPRK INSECURITY OVERCOME BY MISSILES AND NUKES
-------------- -


4. (C) Our contact said that the DPRK's main
obstacle to diplomatic progress over the last 15
years had been its deeply-rooted insecurity, a
problem he regularly encountered in business
dealings with North Koreans. He said that many
North Koreans already knew they had a failed
economy, a failed ally in the Soviet Union, and
in the case of China, an ally who had exploited
North Korea's weak position to pursue its own
goals. Hence, he thought that with nobody to
"trust" or turn to, the DPRK was determined to
obtain nuclear weapons at any cost, even over
the objections of China. The DPRK's bilateral
approaches to the United States had been blocked
by China earlier this decade, but the missile
launch and second nuclear test had provided a
turning point in DPRK flexibility. Now, the
DPRK felt that nuclear weapons offered foreign
policy options that were slightly more
independent of China, as well as better
bargaining leverage with the United States.

DPRK NEEDS U.S. MORE THAN DPRK MAY ADMIT
--------------


5. (C) Our contact told us that the DPRK

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businessmen and government officials he had
developed over the years told him that reaching
out to the United States was something they
simply had to do; any official posturing that
the DPRK could not "trust" the United States was
simply a negotiating tactic (ref A). The North
Koreans had long realized that depending upon
China had weakened their leverage. He claimed
that for all the talk of 60 years of PRC-DPRK
friendship, the Chinese had demanded and
received DPRK compensation for every bit of
grain and energy aid, either through barter or
other chits, while China had regularly forgiven
African debt and loans.


6. (C) Our contact said his DPRK interlocutors
told him that, in spite of DPRK anti-United
States rhetoric, they considered the United
States as the only country in the world that had
not abandoned its allies over the last 50 years,
contrasting this with the behavior of China and
Russia toward their various Eastern European,
African and Asian allies. He speculated that
the North Koreans would treat American
businesses very well, despite the longer history
of interaction with China and Russia. In their
effort to "balance" the mix of foreign
investors, the North Koreans would be thrilled,
in his view, to get Americans into joint
ventures, if only to spite the Chinese and the
Russians.

DAI AND WEN TRIPS TO PYONGYANG: PRE-GAME HUDDLE?
-------------- ---


7. (C) Against this backdrop, our contact said,
the recent Dai Bingguo and possible Wen Jiabao
trips to Pyongyang had less to do with the 60th
anniversary of PRC-DPRK relations, but
everything to do with "prepping" and "reminding"
the DPRK about its obligations when dealing with
the United States, including rules of engagement
and red lines. As part of the game plan, as
long as Pyongyang stuck to the PRC script, the
Chinese would support any bilateral or
multilateral engagement with the United States.
Contrary to being a "loose cannon," over the
last decade the DPRK had largely acted on orders
from Beijing.


8. (C) Our contact claimed that the Chinese
government might pretend to play the role of
responsible world leader, touting its support
for UNSC sanctions and denuclearization, but in
reality Dai and Wen's trips represented the
Chinese suzerain telling the client state how to
behave, based on Chinese national interests.
Although the Chinese authorities would spin
these trips to outside observers, including the
United States and the UN, as part of a
"collaborative and multilateral" policy, he said
the trips simply reflected a Chinese need to
protect Chinese interests in any future U.S.-
DPRK interactions. Any other interpretation of
the Dai/Wen trips stemmed from a lack of
understanding of the Chinese government's
worldview, the Chinese people, and/or the PRC-
DPRK relationship.


9. (C) (NOTE: Our contact is an equal
opportunity cynic. He followed the above
analysis with a harsh criticism of what he
perceived as an anti-China bent in U.S. foreign
policy, citing it as a possible rationale for
PRC resistance on DPRK issues. He asked why the
USG was reaching out to the Russians and
Indians, citing the recent pullback of the
proposed missile defense shield in Eastern
Europe and U.S.-Indian nuclear cooperation as
examples of concessions. He wondered about
continued U.S. support for the Dalai Lama around
the world, not to mention U.S. policy on

SHENYANG 00000170 003 OF 003


Xinjiang and Rebiya Kadeer. He said he and many
of his cohorts did not wish the U.S. any ill
will; most believed that Russia, not the United
States, was the true enemy of China, noting that
in the past 200 years Russia had made the most
efforts to seize Chinese territory. He pointed
to Manchuria and Xinjiang as areas where as
recently as the 1950s the Russians had
encouraged secession.)

NORTH KOREAN ECONOMY NOT GOOD, BUT MONEY HELPS
-------------- -


10. (C) While admitting that North Korea was not
a well-to-do country by any stretch of the
imagination, our contact reported that the
people ate decently and "get by" (ref B). The
public distribution system (PDS) was not able to
provide people with much, but when goods were
available outside of the PDS, people had enough
money to purchase foodstuffs. Euros were now
the preferred currency and could be exchanged
throughout the country, along with dollars. The
use of renminbi was common on the west side of
North Korea along the railroad from Pyongyang to
the PRC-DPRK border, and Japanese yen could be
exchanged in ports on the east side, such as
Wonsan.


11. (C) Our contact said that usually at least
one person per household worked at an informal
market and that it was not uncommon for such
traders to earn RMB 1000 a month. The main
problem was that North Koreans usually had no
way to spend this money. As a result, North
Koreans tended to hoard currency and staples,
such as rice, a practice reminiscent of our
contact's childhood in 1960s rural China,
waiting for the next group of traders to bring a
shipment of goods for sale. He cited an example
where he had visited a family in a rural village
in Hwanghae Province. The family did not have a
wide variety of things to eat, other than common
staples, but hearing they had a visitor, they
took out their bundles of cash, went out to the
informal market, and came back with all kinds of
meat, fruits and vegetables. He concluded that
a lack of reliable access to goods was North
Korea's main problem, not a lack of cash.


12. (C) Our contact said that he never used the
North Korean banking system or any financial
tools when doing business with North Korea. He
said that he used barter, separate settlement
accounts in China, and mainly cash. He said
that he avoided the use of EFTs or other
internationally-recognized methods in his
business with North Korea.

WICKMAN