North Korea’s Six Trillion Dollar Question
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North Korea’s Six Trillion Dollar Question

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Rare earth metals can be a game changing bonanza for North Korea, but, without reform, their claim is likely to pinch out. In the end, the North Korean government must determine if the minerals will be a lever to shift political relations in the region, or if it will continue to sell its most valuable asset at a discount.

If North Korea is willing to create conditions for investment, its supply of rare earth metals and its rich mineral sector have tremendous transformative potential. As Leonid Petrov notes, rare earth metals are highly attractive to Taiwan and Japan, and could override some of the political issues blocking the development of relations between the states. This could change the regional power dynamic in Northeast Asia as North Korea becomes a hub for investment from China, Japan, South Korea and elsewhere. However, for this to happen, the value of the resources, including the cost of extracting the minerals from North Korea, must outweigh the risks of doing business there.

The value of rare earth metals and their relatively limited supply would seem to work in North Korea’s favor. Rare earth metals are used in the construction of everything from iPods to precision guided missiles. China currently produces more than 95% of the world’s output of these metals. China’s control over these minerals has regional implications for Northeast Asia. For example, in 2010 Japan alleged that China suspended its export of the minerals to Tokyo in response to a territorial dispute between the two countries. The EU, U.S., and Japan also recently brought a case against China at the WTO for unfairly inflating the prices of these minerals.

Amidst these disputes, the South Korean government believes that North Korea may have as much as $6 trillion USD in rare earth elements.  Beyond the metals, North Korea is known to be a rich source of many minerals including gold, zinc, magnesite, and others. North Korea is dependent on these minerals to support its economy; in previous years as much as 58% of North Korea’s exports were from the mineral sector. The North is particularly interested in selling these minerals as they have limited domestic utility. North Korea needs to carefully balance the amount of anthracite coal it exports for foreign currency with the amount it needs to keep its factories functioning, but it is not dependent on gold for any domestic development goal.

Although these resources represent significant potential export wealth, North Korea’s mineral sector is underdeveloped, and what is produced is sold at a discount. It is estimated that, on average, North Korean mines operate at less than 30% of their capacity. Many mines need to be rehabilitated and lack a reliable power supply. Much of the equipment dates back to the cold war, and is no longer made, let alone used, outside of the North. Other mines were damaged during the environmental collapse of the 1990, and have not yet been reclaimed. North Korea lacks the resources to redevelop these mines domestically; it is dependent on foreign investment to increase mineral production.

China is currently the biggest player in the North Korean mineral market, and the costs it pays for these resources reflect this lack of competition. Most of this investment comes from small and medium sized enterprises in China’s Northeast that are looking to maximize their economic position by investing in North Korea. This investment would be almost impossible without the special relationship between China and North Korea, and the role of Korean speaking Chinese middle-men that have connections on both sides of the Yalu River, and who can make the arrangements necessary for these business deals.

It is important to note that China pays far less for mineral imports from North Korea than it does, on average, from other states. Exports from China to North Korea, likewise, are priced much higher than Chinese exports elsewhere. These costs reflect the true cost of doing business in North Korea given the necessary investments into mine rehabilitation and transportation infrastructure, as well as the risk that comes with dealing with North Korea. In short, this is a surprisingly market-oriented trade between two ostensibly communist states.

Comments
16

[...] North Korea The Korean Peninsula during the Japanese Empire was richer in resources than mainland Japan. That hasn't changed. . . [...]

[...] labor regulations, greatly reduced transportation costs, and most importantly, trillions of dollars worth of mining potential. But this leaves China in an interesting predicament. Due to sanctions, it is [...]

[...] rogue state is sitting on an estimated $6 trillion worth of minerals. These are mostly rare earths, elements that go into high-tech products and are coveted [...]

[...] rogue state is sitting on an estimated $6 trillion worth of minerals. These are mostly rare earths, elements that go into high-tech products and are [...]

Chris
January 21, 2013 at 09:17

I absolutely beg differ

Jothiratnam
October 21, 2012 at 21:34

Oh, there're precious resources involved? Did someone just change the music, is that a different tune playing now? Will we see N. Korea no longer demonised now that there's something more valuable than intangibles like human rights and such on the table now? Will it suddenly become like Apartheid-era South Africa which many states were scrambling to engage in profitably, I mean 'constructively'?

delinquint
September 20, 2012 at 04:16

china for years and years has been buying up all the scrap metal's from everyone they are also a rich country everything from iron to oil but the choose to buy scrap rather than mine thier own . which is truely a good plan to use others scrap rather than your own . then when one day no one else has anything left they will be the only player and thier ore's and oil will be worth expinentialy more than it is to moine it now and cheeper to get from others as well .

Gamer888
September 2, 2012 at 22:48

Maybe…but the regime's policies regarding foreign investment is too rigid..they crave for such investments but once there, they remain pretty inflexible and companies cannot just work properly. Some of money goes to the elites rather than fuel industries, salaries….North Korea is among the top 3 most corrupted states in the world. US sanctions has little to do….the main issue is the nature of the regime. North Korea is seated on a gold mine with its natural ressources but prefer to open it to chinese companies rather than western ones…I wonder how good are chinese ethics in North Korea. 

kalendjay
September 1, 2012 at 09:47

Oh yeah? It was reported during the war in Vietnam that they had tungsten, still a valuable alloy element. There is also iron, coal, and tropical timber. South Vietnam racked up surpluses in the 60's thanks to cotton, and would have been on the way to creating a Taiwan-like economy if the Vietnamization of the war continued (until aid was cut off, ARVN won every engagement with the North). DRVN would have been a shriveled husk compared to its southern neighbor, and US would not have been so keen to play up China as the trade opportunity of the century. As it happens, South Korea has been and remains a better trade opportunity and partner than China in the equivalent time frame, since the latter is showing systemic economic problems that were unthinkable only 5 years ago.
 
So I wish you bloggers would stop blathering abut China and the CIA in unintelligible English! 

Cam
September 1, 2012 at 06:59

 
Were with the Chinese assistance, the Vietnamese defeated various chinese dynasties of Han, Song, Yuan, Ming, Quin, even with the current CCP in 1979? You are a bunch of ignorant indeed. Go back and learn your own history book.

Rye
August 31, 2012 at 18:01

@Cam
Don't call Korean losers when you Viet produce nothing but fish sauce. Without China support  during the Vietnam War, Vietnam will never unified–think the North would win the war with their bamboo spears and  2-inch-manhood??? Don't be ungrateful and bigot bunch. Today Vietnam's economy is disarray and the CIA is in full swing for regime change, Vietnam war 2 is in the making!!!

Oldertimer
August 31, 2012 at 08:30

Don’t you think the US sanctions on North Korea have anything to do with that country’s state of dereliction and impoverishment?

August 31, 2012 at 02:19

[...] estimated value of North Korea’s rare earth minerals, according to the South Korean Government. Given North Korea’s limited capacity in the mining sector, it remains uncertain whether North [...]

Cam
August 30, 2012 at 12:09

Both North and South Korea are real losers. They are watching helplessly while the Chinese are sucking NKorea dry.

Mark Thomason
August 30, 2012 at 07:25

The North Koreans would object to the idea it must be developed by foreign money.  If they would divert some of their own resources from the military, they'd be right about that.

applesauce
August 30, 2012 at 00:47

there's supposedly a lot of mineral wealth in Afghanistan too, but you know, probably wont bring benefits to anyone for the foreseeable future just like north korea.

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