Ryan Pyle Blog: China is Funding Terrorism

Hello.

On December 20th 2010, the Shangdi Guanqun Investment Company signed a letter of intent to invest up to USD 2 Billion in to an port and industrial zone in the Northeast of North Korea. A similar investment was tried in the 1990s but didn't amount to much, but apparently this time around the deal was cemented during a visit by Wen Jiabao in 2009. Upwards and onwards.

So what does this mean? Well, apparently we live in a world where you (a pudgy dictator) can shell a democratic country, kill 40+ civilians and then be rewarded with a USD 2 Billion in investments from an emerging superpower, who is also the world's second largest economy. In other words, it means we live in a pretty sick time; an era of distaste and disbelief.

Make no bones about it, this money being invested will go nowhere. The port and industrial center will not develop and the money will be siphoned off or disappear. It will not help ordinary people in North Korea and will only create jobs that support either the military or the government directly. The Shangdi Guanqun Investment Company is a state-run company that specializes in natural resources and infrastructure development. Ownership, or should I say beneficiaries, of the company is opaque at best.

To me, a China watcher and long time resident of Shanghai, I would have to say that this deal simply amounts to state sponsored terrorism. Strong words, but what more can we believe. Basically a Chinese Government controlled entity is using cheap loans from a Government controlled bank to invest USD 2 Billion in a rouge state that holds most of Asia hostage with nuclear tipped missiles. If something sounds amiss, it's because it is. None of this adds up and it shows the true weaknesses of China: that leadership is fractured and it leaves one asking who is really in charge. Obvious Hu Jintao, while dining with President Obama, wouldn't have green-lit this investment to be announced during his state visit to the USA. Those who did make the deal public clearly wanted to damage Hu Jintao's reputation.

There are a lot of factions in China, all bumping in to each other in an attempt to carve out their own power centers. The political leadership is just one of those factions; the military is another. Former leaders, and their children, who run massive conglomerates and/or investment companies and LBO firms are another. As China becomes more powerful and more foreign investment enters the country having all these powers pushing for power, without a strict rule of law to govern them, will create chaos.

In the US the State governments push the Federal government, the Congress pushes the White House, the Supreme Courts keeps everyone in check. There are power centers and power does shift but there is a Rule of Law that keeps it all in check; and there is a free press that points out when one faction becomes too powerful. In China none of that exists. Some might say that is an advantage to getting things done quickly. That's true, and positive, when it comes to building infrastructure and things like low-income housing; but its clearly negative when it comes to propping up the North Korean regime with a USD 2 Billion investment.

China needs to decide which team it wants to play for: The one that sponsors terrorism or the one that doesn't. An article by the WSJ is below.

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The Wall Street Journal
Date: January 19 2011
Copyright: The Wall Street Journal
Original Link: Article

By: JAY SOLOMON And JEREMY PAGE

A Chinese firm has signed a letter of intent to invest $2 billion in a North Korean industrial zone, representing one of the largest potential investments in Kim Jong Il's authoritarian state and a challenge to U.S. policy in the region.

The agreement was signed with little fanfare in Pyongyang on Dec. 20—a day otherwise marked by pitched tension on the Korean peninsula following the North's shelling of a South Korean island—according to documents viewed by the Wall Street Journal. Confirmation of the deal comes as Chinese President Hu Jintao visits Washington this week in a bid to forge closer security and economic ties with the U.S.

U.S. officials said the administration is aware of the possible Chinese investment, but noted that previous projects haven't gone anywhere. "No investment project will enable North Korea to meet the needs of its people as long as its government continues its destabilizing behavior," said a senior administration official.


The letter of intent involves China's Shangdi Guanqun Investment Co. and North Korea's Investment and Development Group. An assistant to the managing director of Shangdi Guanqun, who identified himself only by his surname, Han, said his company's planned investment is focused on the Rason special economic zone, situated near North Korea's border with Russia.

The zone was called Rajin-Sonbong when it was established in 1991, but failed to attract sufficient investment. It was revived, and re-named Rason, following a visit there in 2009 by Mr. Kim.

Mr. Han said the plan is to develop infrastructure, including docks, a power plant and roads over the next two to three years, followed by various industrial projects, including an oil refinery, over the next five to 10 years. He said the company was waiting for a response from the North Korean government before applying for approval from China's Ministry of Commerce.

"It's all pending at this stage, and it's really up to the Korean side to make the decision," Mr. Han said. He added that the $2 billion figure was what the North Korean side had hoped for, not necessarily what his company could deliver.


Associated Press
North Korean leader Kim Jong Il endorsing a bottle

The company's Web site says the company was "under the administration" of a state-owned enterprise, Shangdi Purchase-Estate Corporation. Mr. Han, however, said his company was "100 percent private."

For the Obama administration, securing China's cooperation in restraining North Korea's military and nuclear-proliferation activities is a cornerstone of a warmer bilateral relationship. But the potential investment is a reminder of possible limits of Chinese cooperation.

The U.S. wants to step up sanctions to force Kim Jong Il to give up his nuclear-weapons arsenal and military activities. China, meanwhile, is increasingly promoting business projects and direct investment to influence the North, say Chinese and American analysts, arguing financial pressure hasn't worked.

China is North Korea's biggest trading partner and aid donor, but the scale of this deal raises concerns in Seoul that Beijing is running its own version of the "Sunshine" policy under which the South boosted investment in the North from 1998 to 2008.

This policy disconnect is expected to be one of the issues Chinese and U.S. officials discuss this week. "These types of deals pursued by China generally present a real challenge to the sanctions" being effective, said Victor Cha, a North Korea expert who helped oversee Asia policy in George W. Bush's National Security Council. "The net effect is that it does make it more difficult for these sanctions to have the desired effect."

Such deals have emerged in the past and have come to nothing, analysts said, and it is possible this one, too, could peter out. A number of similar North Korean economic zones have failed to live up to their billing because of poor infrastructure and corruption, and a lack of economic reform. News of the deal was first reported in the Korean-language press, including the Voice of America's Korean service.

It is unclear how long the agreement has been in the works. But its Dec. 20 signing came on the day South Korea conducted a closely watched artillery test from Yeonpyeong Island near North Korea.

The test marked a high point in tensions after North Korea's surprise late November shelling of Yeonpyeong, which killed four South Koreans. Pyongyang had threatened a swift military response should Seoul carry out an announced artillery test on Dec. 20. But the day's drill came and went amid high security in the South, with the North saying in a statement it "did not feel any need to retaliate."

Top administration officials have recently both praised and chided the Chinese over the North. On a trip to China last week, Defense Secretary Robert Gates commended the Chinese for their "constructive" role in reducing tensions on the peninsula after Pyongyang's recent shelling of a South Korean island. Secretary of State Hillary Clinton in a Friday speech pressed China to be more aggressive in helping tamp down the North's nuclear program.

The proposed investment is among the strongest evidence yet of China's strategy of using direct investment rather political pressure to push for change in North Korea. Chinese experts say that after North Korea's first nuclear test in 2006, China tried to make improved bilateral relations dependent on Pyongyang dismantling its nuclear program. But after a second test in 2009, China changed tack.

Beijing now believes, according to Chinese experts, that the North Korean regime won't respond to political pressure and could collapse completely if China cuts off aid and investment, triggering a flood of refugees into northeastern China, and bringing U.S. troops right up to the Chinese border.

The investment strategy was cemented when China's Premier Wen Jiabao visited North Korea in October 2009 and signed a slew of economic and trade agreements. One of those agreements was for China to fund construction of a $250 million bridge across the Yalu River that separates the two countries.

Construction of the bridge, which would link China with another North Korean special economic zone, had been slated to start in August. Local officials said in November it appeared to have been put on hold indefinitely. Now they say a ground-breaking ceremony was held Dec. 31.

U.S. officials are particularly concerned about how China's financial links to North Korea may be facilitating Pyongyang's weapons programs. In November, Pyongyang showed a visiting American scientist 2,000 centrifuges stationed at a cover site, drastically raising fears about the North's ability to expand its nuclear-weapons arsenal.

"China's increased economic support undercuts the rest of the region's efforts to convince Pyongyang that there will be consequences for further belligerence, nuclear weapons development or transfer of nuclear capabilities," said Michael Green, who also served as a senior official on Asia during the Bush administration.
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Ryan Pyle
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ryan@ryanpyle.com
Website: www.ryanpyle.com
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