September 5, 2012 / 6:52 AM / 6 years ago

Exclusive: "Cheated" China firm urges Beijing not to push investment in North Korea

BEIJING (Reuters) - China should not be encouraging its companies to invest in reclusive neighbor North Korea because it still lacks the conditions to protect foreign investors, a senior official with a major Chinese investor there said on Wednesday.

The warning will be disturbing for North Korea whose new young leader, Kim Jong-un, is pressing for more investment from his only major ally to help lift the North’s impoverished economy.

An editorial by a Chinese Commerce Ministry official in the People’s Daily last month said that China needed to encourage and support its companies to invest there.

“I have to say this policy is wrong,” said Wu Xisheng, vice general manager of the Xiyang Group, a miner and steel producer which recently took to the Internet to air its grievances over problems it faced with an iron ore power project in the North.

Xiyang, based in China’s northeast Liaoning province near the North Korean border, had signed up for a 75 percent stake valued at 36 million euros ($45 million) in a 10 million ton a year iron ore processing plant.

Wu told Reuters his company had been “cheated” by its North Korean partners, who violated the contract by raising land, power, water and labor costs with the express purpose of driving its Chinese partners out.

“This isn’t just about us - it is about all companies investing in North Korea,” he said. “They just don’t have the conditions for foreigners to invest. They say they welcome investment but they don’t have the legal or social foundations.”

Highlighting the sensitivity of the issue, the North’s official KCNA news agency launched an extremely are attack on a Chinese firm, accusing Xiyang of violating the contract by carrying out only 50 percent of the investment stipulated in the contract.

Wu said the charge was “unreasonable” and that Xiyang did not invest the full amount because it had become clear that North Korea was violating the contract with the express intention of driving it out.

He added that North Korea had already agreed to pay compensation of 30 million euros but 100 days after an agreement was signed, Xiyang still had not received any payment. He said North Korea have since requested a further round of negotiations, which Xiyang had refused.

Wu said Xiyang wasn’t the only company to be cheated in North Korea, but added that the Chinese government was reluctant to intervene to protect the interests of its firms.

“The Chinese government can do nothing - it is thinking more about political stability.”

Editing by Jonathan Thatcher

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