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     May 24, 2011

North Korea takes aim at foreign investors
By Yvonne Su

BEIJING - After decades of isolation, North Korea, one of the world's last surviving Stalin-style socialist command economies, is launching a 10-year economic development plan, with an ambition to boost the country's gross domestic product (GDP) to $360-400 billion.

Pyongyang has put attracting foreign investment at the heart of the State Strategy Plan for Economic Development, setting up a National Development Bank and assigning an insurance company to protect foreign investors.

Reaction has been mixed among Chinese businesspeople who do work with North Korea. While some believe the new plan will open

more business opportunities, others say it is still not a good time to start investing across the border.

The 10-year plan, according to the state-run Korean Central News Agency, will focus on building up infrastructure as well as developing agriculture and other basic industries such as electricity, coal, oil and metals.

It appears a departure from the military-first policy that has dominated North Korea society for decades, but economic experts point out that this is not a new initiative.

"They [the North Koreans] have been talking about opening up for so many years now," said a trader based in Dandong, a Chinese city border North Korea, who only gave the surname of Lu. "They just never executed the policy."

The ambitious plan, designed to build a "kangsong taeguk" (strong and prosperous nation) from 2012, comes as the North Korean government is still suffering under an aid blockade from South Korea, Japan and the United States. To compound its financial concerns, United Nations sanctions have shrunk illicit revenue from drug trafficking, currency counterfeiting and weapon trading.

According to the US Central Intelligence Agency's (CIA) World Fact Book, North Korea's annual GDP is estimated at some $40 billion over the past few years.

The 10-year plan's projects include developing the east coast port of Wonsan into a ship construction zone, establishing the border city Sinuiju as a light industry zone, and building the port city Nampho into a food processing and pharmaceutical center, according to people familiar with the plan. Pyongyang also plans to develop two offshore islands on the Yalu River into free-trade zones.

To execute the plan, the North Korean government will set up a National Development Bank and assign Taepung International Investment Group to solicit foreign investments. Taepung's chairman, Park Chol-su, a Korean-Chinese, has been named as the National Development Bank's vice president.

According to Korean media, Park was born in 1959, graduated from China's Yanbian University and received a master's degree in business and commerce from the University of International Business and Economics in Beijing. He later developed close ties with senior North Korean officials by importing gasoline directly from the Middle East to North Korea in the late 1990s. Some businessmen suggested Park and Taepung are backed by Kim Yang-gon, the director of the United Front Department of North Korea's Workers' Party.

Emphasizing the government's determination, sources involved in the plan are optimistic. "There are a lot of business opportunities in North Korea now," said a Beijing-based consultant who is involved in the project, speaking on condition of anonymity. The consultant suggested Pyongyang plans to tout for business by offering its mining resources.

Seasoned North Korea-related businessmen questioned Taepung's relationships with the North Korean government, raising doubts over how Taepung will help foreign investors apply for licenses and transfer profits out of the country.

Some North Korean government officials have also questioned Taepung's capacity to attract foreign investment, according to foreign businessmen and consultants.

"Taepung's reputation among some North Korean officials is that it talks a lot but delivers very little," said a Singapore-based business consultant who declined to be named.

Taepung's chairman, Park, could not be reached for comment.

Most traders in China's border city Dandong, meanwhile, said they had neither heard of Taepung nor of any new economic policies from their North Korean counterparts.

Kim Jong-il, North Korea's leader, has reportedly begun visiting manufacturing operations, which some Korea-watchers interpret as a sign of start of economic reform. The Pyongyang Times newspaper has again begun highlighting news about new factories, new shops and food productions.

Pyongyang's 10-year plan comes 18 months after it conducted its second nuclear test, a step which Chinese academics believe gave North Korea the confidence to push for economic development.

"The success of the nuclear test made North Korean leaders feel safe enough to shift its focus to build the country," said Zhang Yushan, researcher at the Jilin Academy of Social Sciences, adding that the fact that North Korean military is playing a less significant role in the Workers' Party of Korea is another sign of the regime's determination. "Even though they still talk about the 'Songun', or military-first policy, the main control has quietly shifted to the party."

North Korea has tried to boost its economy since 1984, when the government then introduced the Joint Venture Law to solicit foreign investments. In 1991, the government established the Rajin-Sonbong special economic zone, hoping to match China's experience of using special economic zones to promote reform and opening up. In July 2002, the government introduced the "Measure for the Strengthening of the National Economy", increasing workers' wages and legalizing market trading.

In September 2002, it again tried to establish a special zone in the border city, Sinuiju, but the project didn't go anywhere after China arrested the special zone's representative Yang Bin for tax evasion. In 2009, Pyongyang unexpectedly introduced a currency reform to suppress its currency's role in the distribution of goods and services. The policy, which lopped off two zeros from the previous paper currency, led to rampant inflation and eating into whatever savings people might have.

"It is still not a good time to invest in North Korea," said Zhang Yungjing, a Dandong based trader. "I know people who have invested there can't even get their capital back. Let alone make a profit."

Yvonne Su is a Beijing-based journalist.

(Copyright 2011 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)

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