North Korea gets lukewarm reception to investment plea

Reuters News

9/26/2012 1:51:20 AM - Reuters News

By Ben Blanchard and Langi Chiang

BEIJING (Reuters) - North Korea got a lukewarm reception to a plea on Wednesday for investment in two special economic zones set up with China, with businesses expressing worries about the impoverished state's stability and lack of basic infrastructure like banks.

Rason on North Korea's east coast and Hwanggumphyong, an area on the western border between the two countries, hope to attract Chinese and foreign investment to help Pyongyang overcome tough international sanctions imposed in retaliation for its nuclear tests.

New leader Kim Jong-un also aims to deliver on a promise to make the North a "prosperous" nation by 2012 and banish memories of his father's austere 17-year rule.

But after listening to a presentation from Chinese and North Korean officials at one of Beijing's most expensive hotels laying out the supposed allure of the two zones, the head of one company gave an emphatic "no" when asked if she was convinced.

"We're not thinking about it at the moment," said Li Guilian, chairwoman of Dalian-based clothing company Dayang Trands. "We might go and have a look at Hwanggumphyong, but I don't think we'll invest."

She nodded her head vigorously when asked if she thought it was risky investing in such an isolated and backward country.

"Investors need first of all to consider the environment. If there's a problem with the environment, then there's no way people are going to commit money," Li told Reuters.

Some Chinese companies which have been brave enough to invest in their economically feeble neighbor have come to regret it.

Chinese miner and steel manufacturer, the Xiyang Group, has described its investment in an iron-ore powder venture there as "a nightmare", accusing the North of violating its own investment laws.

North Korea relies on China to support its economy, which has been dragged down by decades of mismanagement and sanctions over its weapons programs.

Kim's father, who died last December, flirted with reform but never really let it take root, wary of anything that might undermine his family's iron grip over the state.

But the new leader has presented a different image to his father and is believed to want economic and agricultural reform. China also wants stability in North Korea and has been keen to push its neighbor to learn from its experience.

"We are willing to share our 30 years of experience of reform and opening up with our North Korean comrades," Bing Zhigang, deputy governor of Liaoning province, which borders North Korea, told the forum.

North Korea is promising incentives such as low taxes and visa free access to at least part of the two zones, though details are sketchy.

"We hope the two governments can offer more support and speed up the implementation of related policies to create better conditions for companies," said Yang Tianping, general manager of China Merchants Shekou Industrial Zone Co Ltd.

"We hope to see more detailed rules for business operations," added Yang, whose company runs a booming industrial zone next to Hong Kong.

As China's economy bolts ahead, North Korea could also offer respite from growing Chinese labor costs, officials hope.

Wang Lianhe, director of China's Heilongjiang Ningan Farm, which grows rice in the Rason zone, told Reuters the basic monthly salary was just $80, even if the lack of any Chinese banks there complicated his business.

Still, he is optimistic.

"As one of the first companies doing businesses there, they also offered us special rights to trade in grain and get into the tourism and mining sectors. That's for our expansion in the future," Wang told Reuters.

(Editing by Jonathan Thatcher)