Pyongyang's Stillborn Capitalism
North Korea Wary of Investors, Even in Free Trade Zone
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By Don Kirk International Herald Tribune
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SEOUL - The signs proclaiming ''Free Trade Zone'' have been pulled down outside North Korea's special trade area that was meant to lure foreign investors, according to diplomats and discouraged business executives. And the move appears to be more than a momentary whim.
Removing the signs, they say, signals a deeper truth: that seven years after North Korea established the zone, intent on bailing out its economy with foreign capital, Pyongyang remains suspicious of international investors and reluctant to accept more than a hint of a market economy.
North Korean officials view the concept of such a zone as ''too far from their society,'' said a European business executive who has visited the 746 square-kilometer (288 square-mile) zone that includes the cities of Rajin and Songbong on the northeastern coast of North Korea by the Chinese and Russian borders.
While declaring their openness to foreign investment, the executive said, ''They like to bite the hand that feeds them.'' Approximately ''95 percent of the projects they talk about are not happening,'' he said.
North Korea's leader, Kim Jong Il, is said to have ordered removal of the signs facing the North Korean countryside beyond the zone so that ordinary citizens would never see them - and get ideas about building up a capitalist system modeled after the zone.
The gesture suggests not merely the lack of enthusiasm among North Korean officials as they try to lure foreign investment into an area that once appeared as the great hope for rescuing North Korea's devastated economy. It also provides an insight into the difficulties of introducing a market economy to a country whose citizens survive on barter.
''There has been no reform at all,'' said Cho Dong Ho, research fellow at the Korea Development Institute, a South Korean research organization. ''Free markets are prevailing in rural areas, but the volume of trade in those markets is limited. They barter for rice and daily necessities because the official distribution system has collapsed.''
The new constitution specifically provides for the northeastern free trade zone as well as an independent accounting system for state enterprises, but analysts note the zone has existed since 1991 and independent accounting has been in effect for 15 years.
Even so, business throughout the country, including the zone, is declining. Analysts at the Korea Development Institute estimate that industry outside the zone is operating at 30 percent of capacity, while the average household relies on barter for 70 percent of total consumption.
Making matters worse, inside the zone, the economic crisis that now afflicts the rest of Asia from Thailand to Japan and South Korea has forced investors either to slow projects in the zone or cancel them.
Since the zone opened in 1991, hundreds of firms have signed agreements to set up factories or offices, but only about six of them are doing business there now, among them Roxley Pacific Co., which operates telecommunications in the zone, and Emperor Group of Hong Kong, which has invested $20 million so far in building a hotel and casino near Rajin.
Actual investment in the zone totals only about $65 million, according to the United Nations Development Program in Beijing, even though North Korea has said that 111 foreign contractors have promised to pour in about $750 million
''The zone is not ready for investment so far,'' said Cho Eun Ho, who monitors North Korean economic problems for the Korean Trade Investment Promotion Agency here. ''Companies will not invest according to their contracts because the situation is not clear.''
Mr. Cho questioned the United Nations' figures for investment in the zone, saying that UN officials ''want the zone to succeed.'' By his calculation, investment in the zone since 1991 has reached about $40 million
But South Korea companies now appear interested in exploring the possibilities for investing in the zone despite the economic crisis that has forced most of them to cut their own business at home.
''They want to go there because the North Koreans won't let them invest anywhere else in the North,'' said a South Korean responsible for passing on the requests.
The only South Korean investment in North Korea so far consists of a few small factories in the west coast port of Nampo that are operated by the Daewoo Group. The Hyundai Group is to set up a tourist service to the Diamond Mountain region in the southeastern corner of North Korea, near the demilitarized zone that separates North from South Korea, but the service, originally to begin on Sept. 25, is likely to be postponed.
About 400 South Korean business executives have said they would like to attend a conference organized by Chinese authorities in Hunchun, on the Chinese border next to the zone, from Sept. 21 through Sept. 23.
North Korean officials have indicated few if any South Koreans will be able to enter the zone for a follow-up conference in Rajin on Sept. 24 through Sept. 26. The conference will also be closed to all foreign media.
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