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 SHENYANG 00000170 002 OF 003 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