* Chinese investors saw an opportunity to quench North
* Local North Korean officials loved the beer, dubbed "river
* But government in Pyongyang never gave the green light
* Investors hedged risk by buying North Korean squid
* North Korea has potential for business, says Chinese
By John Ruwitch
TUMEN, China, April 12 Setting up a brewery in
North Korea seemed like a good idea to Harry Kim and his Chinese
friends two years ago. Everyone likes beer, even in one of the
world's most closed and least understood countries, they
Kim and his partners even got the beer flowing after workers
strapped equipment onto a truck in the Chinese border town of
Tumen and drove it to the North Korean coastal city of Chongjin.
Chinese engineers taught the locals how to brew. City officials
loved the taste, he said.
But the small Chinese-North Korean venture ran aground
within months after failing to get final approval from
authorities in Pyongyang.
Kim's experience is an illustration of both the challenge
and the potential of doing business in North Korea, which has
grabbed global attention in recent weeks with its threats to
wage nuclear war on South Korea and the United States.
"It wasn't rejected. We just waited. The central government
didn't come and say 'no', but the documents were just never
issued and so we eventually gave up," said Kim, a Chinese
national of Korean descent living in Tumen in China's
northeastern Jilin province.
AT EDGE OF GLOBAL INVESTMENT FRONTIER
Building a brewery in Chongjin, North Korea's third biggest
city, made good business sense.
Domestic beer has to be trucked up from Pyongyang, 460 km
(285 miles) to the southwest. Terrible mountain roads and the
journey takes its toll on the cargo, said Kim, speaking at a
restaurant he owns, a few blocks from the icy Tumen River which
divides the two nations. One tour operator said North Korean
beer in Chongjin was twice as expensive as in Pyongyang.
Chongjin and provincial officials supported the project.
Factory space was available in the rustbelt city, 130 km (80
miles) to the south of Tumen. The local water was crystal clear,
too, promising a clean and tasty product.
And to hedge the obvious risks, the local business partner
arranged for the Chinese to buy North Korean seafood to sell in
China at each stage they invested in the beer venture.
"The problem isn't that the people are hard to deal with,"
said Kim. "These are all firsts. It's not that the nation does
not want to do it, but rather that it's the first time."
Indeed, North Korea lies at the very edge of the global
investment frontier. Subject to years of U.N. sanctions over its
nuclear and missile programmes, few have tried to make money in
the country apart from Chinese companies as well as South Korean
firms in an industrial park near the North-South border.
Pyongyang effectively closed that factory zone this week amid
its threats of war.
Between 2003 and 2009, Chinese investment in North Korea was
a paltry $98.3 million, according to Chinese data cited in a
2011 report by Drew Thompson, a Korea specialist now at the U.S.
Department of Defense. Analysts say Chinese investment has risen
more recently following a push by Beijing, North Korea's only
major diplomatic ally, to boost economic links.
Examples of failed Chinese investments abound. Last year,
the Xiyang Group said it had been "cheated" in a failed deal to
refine North Korean iron ore. In public comments, the miner and
steelmaker said doing business in North Korea was a "nightmare".
HEINEKEN AND CORONA ON SALE
There is little public information on North Korea's beer
market but one thing seems clear - demand outstrips supply.
Troy Collings, a director at Young Pioneer Tours, a travel
operator based in China which takes groups into North Korea and
has organised brewery visits, said there were probably less than
a dozen locally made beers available in the country.
In Pyongyang, two hotels concoct their own microbrews. The
Rakwon department store creates its own eponymous beer, too, he
"They can't produce enough for the domestic market," said
The opportunity was clear - and reinforced for Kim when he
saw the elite in Chongjin drinking a lot of Heineken and Corona.
So, in mid-2011, Kim and two friends joined up with a North
Korean businessman to put the brewery plan in motion.
Approval from Chongjin city came easily, he said. The
province, North Hamgyong, gave the green light too. And the
first of three investments in equipment and supplies - the
initial one worth about 200,000 yuan ($32,200) - was made.
Since North Korea has no system of credit and the risks of
investing were high, Kim and his partners tied the beer project
to seafood exports.
Before each investment was made, they were allowed to buy a
cargo of North Korean seafood to sell in China. The first was
about 50 tonnes of squid, he said.
North Korean seafood, hauled from the frigid, pollution-free
waters off the coast in the Sea of Japan, is a delicacy in
China. In Hunchun, a Chinese city near the northeastern tip of
North Korea, wholesalers of North Korean crabs line one street.
SQUID HEDGE HELPED BUSINESSMAN BREAK EVEN
It took about nine hours to drive from Tumen to Chongjin
with the brewery equipment, including stops at customs.
The equipment was installed quickly and Chinese engineers
showed the North Koreans how to brew. Soon, suds were flowing.
The product was dubbed Wongang, or 'river source', beer.
On the first day of business the investors invited senior
city and provincial leaders to the brewery for a sample. All
approved, Kim said.
But the new brewery could not ramp up production without
authorisation from Pyongyang, which never came despite months of
waiting. There was never a response and the investors never got
"If you push too hard it could raise suspicions," Kim said.
It was a pity, because the North Koreans were good workers,
he said, citing how the investors overcame the frequent power
cuts which made it hard to use a computer to monitor the brewing
Instead, the investors stationed North Korean workers at
each of the pressure gauges on the brewing equipment in 12-hour
shifts. The workers were told if the dial reached a certain
level they should turn a knob to let off pressure.
"They got chairs and sat there looking at the gauges, not
sleeping all night, one person at each position," said Kim.
Thanks to the squid hedge, the Chinese investors basically
broke even. Kim now runs his restaurant in the space where the
brewing equipment was stored before it was hauled to Chongjin.
Some day Pyongyang may give the green light, Kim says, but
he is not holding his breath.
"As I was leaving they said 'It's not that we don't want to
do it, and it's not that our senior leaders or the central
government don't want to do it, but we just don't have practical
experience with this kind of thing'."
($1 = 6.2033 yuan)
(Additional reporting by Daum Kim in SEOUL. Editing by Dean