By Jeremy Laurence
MOUNT KUMGANG, North Korea (Reuters) - Long grass grows around the idle hotels, stores are covered in cobwebs and a big padlock hangs off the front of the bank at the deserted shopping center.
This is a modern day ghost town in already poverty-stricken North Korea, even though it is funded by wealthy neighbor and rival South Korea.
The east coast Mount Kumgang resort was once a symbol of cooperation. Now it's a stark reminder of the divide between the communist North and capitalist South, technically still at war having only signed an armistice, not a peace treaty, to the end their 1950-53 civil conflict.
Three years ago, the shooting of a South Korean tourist by a North Korean soldier resulted in Seoul halting tours to the complex, effectively drying up a source of much needed hard currency for the reclusive North.
The North said last month time had run out to resolve the row, expelling the South's remaining workers and saying it would start selling South Korean assets at the resort, valued at around $450 million.
South Korea's Hyundai Asan is by far the biggest investor and has exclusive rights to run tours to the resort for the next few decades. The South Korean government has also invested heavily, building a meeting venue for Korean families separated during the Korean War, duty-free shops and a cultural hall.
The North says that those contracts are now invalid. Seoul has countered that it will take political and diplomatic measures to ensure its assets are protected.
The resort row comes against a backdrop of the far bigger dispute over North Korea's nuclear weapons ambitions, the subject of on-again-off-again multilateral talks hosted by ally China which North Korea walked out of two years ago.
Only on Tuesday, South Korean President Lee Myung-bak replaced his hardline minister in charge of policy on North Korea with a close political aide thought to advocate dialogue.
Lee is under growing pressure to ease tensions with the North that are at their highest levels in decades. The two came to the brink of all-out war last year after North Korea, angered by live-fire drills by the South in what it said was its territory, shelled a South Korean island, killing four people.
Lee has demanded the North end its nuclear arms pursuit as a condition for improved political and commercial ties and cut off financial and food aid provided by his liberal predecessors for ten years when he took office in 2008.
North Korea, which blames the United States and its ally, the South, for almost all its woes, conducted its second nuclear test in 2009, after abandoning the "six-party" talks, triggering U.N. sanctions that cut off a lucrative arms trade, further squeezing its moribund economy.
It has been asking for food aid around the world claiming dire shortages, but some skeptics say Pyongyang may be trying to stockpile food ahead of a big state anniversary next year.
Officials in North Korea meanwhile say the secretive state's leader, Kim Jong-il, has issued a directive to breathe new life into the country's tourism industry. And on Wednesday, the North escorted a group of about 100 Chinese business people and guests to the sprawling Mount Kumgang complex.
The Chinese delegation were taken on a three-hour trek in the craggy mountains, walking along a river of crystal clear water and ending at a stunning waterfall.
But Chinese companies may be wary of buying assets over concerns that this could cause a diplomatic rift with the South and impact their strong bilateral trade.
One Chinese operator traveling with the group, who asked not to be identified, told Reuters: "We are not willing to get involved."
An American businessman, however, has stated his interest in running tours to the resort. Reports also say the North has sought a new partner in Japan.
In its heyday, the resort attracted 300,000 South Koreans a year, earning North Korea tens of millions of dollars in hard currency.
A trickle of foreign tourists are still coming to the area, including Australians and Malaysians who paid around $2,600 for their week-long visit to the North.
"They treat us like kings here, the people and the food are excellent, and the scenery is amazing," said Max Ward, 51, of Melbourne.
Ward, accompanied by three North Korean "guides," said he had come to North Korea because he wanted "to do something different," although he admitted his trip had not been completely worry-free.
"A couple of times we got some grief from soldiers," he said. "But we'd just bag out (criticize) the Americans, and then everything would be okay."
(Editing by Nick Macfie)