The North starts looking for business

View from Korea

Wanted. Asian government seeks enthusiastic business partners for ambitious project to reconstruct economy and boost international image. Successful applicants will have imagination, ready capital and the appetite for a challenge. Tolerance of extreme cold and a fondness for pickled cabbage an advantage. Apply Kim Jong-Il, Residence of the Dear Leader, Pyongyang, North Korea.

Even by the standards of the former communist block, it sounds like an unlikely proposition. Since the end of the Cold War, North Korea, last of the old Stalinist republics, has become an economic basket case. Fuel and power shortages have brought industry to a near-standstill. Agriculture, always a medieval affair, with ox carts out-numbering tractors, has been wiped out in parts of the country by disastrous floods.

Only the million-strong army appears to be in reasonable working order. Last week it once again rattled nerves from Tokyo to Washington with a series of incursions on the tense North-South border. The classified ad above is, so far, imaginary, but the scene it describes is accurate. After 50 years of isolationism, sabre-rattling and economic decay, North Korea is looking for business.

Korean affairs are riven with paradoxes, and this one is no exception. From its bloody birth out of the ruins of the 1950-53 civil war, North Korea staked its existence on the doctrine known as Juche - self-reliance. At the best of times this was a fiction, but until five years ago the country could at least get by, tided over with hand-outs and cut-price rice from China and the Soviet Union, which also provided markets for its cheap clothes and machinery.

But with the thawing of the Cold War, all this changed. To Moscow and Peking, Pyongyang's crude rhetoric and the pseudo-religious cult surrounding its "Dear Leader", Kim Jong-Il, became an embarrassment. After Russia and China established trade and diplomatic relations with its hated rivals in South Korea, the North's dilemma became acute; either cast off the mask of self-reliance and risk its only source of legitimacy, or watch its economy fall to pieces.

The problem has been tackled with a typical mixture of aggression and denial. Since 1994, when Kim Jong-il's father, the founding president and "Great Leader", Kim Il -Sung, died, Pyongyang's public pronouncements have become ever more bellicose and uncompromising. But at the same time, it is pursuing a parallel and wholly contradictory project: the establishment of a limited free trade system and the acquisition of the life-giving foreign currency, the country's only hope.

In fact, international business is nothing new to North Koreans. For years, they have operated an enthusiastic barter economy with Chinese traders on the northern border. Unknown billions of yen flow from expatriate businessmen running loan companies and pinball arcades in Japan. But hopes of true economic salvation are concentrated in an area known as the Rajin- Songbong Free Trade and Economic Zone, a little-known experiment in the controlled capitalism that has reinvigorated southern China.

The zone is part of the much bigger Tumen River project, sponsored by $30bn of United Nations money and encompassing the adjacent regions of China and Russia. So far, it is little more than an intriguing idea; of the $3bn being sought by North Korea, only $200m has been promised, and little more than 10 per cent of that has actually materialised. Chinese, Japanese and Russian companies remain the biggest participants, and cautious investments by giants such as Daewoo make South Korea Pyongyang's fourth- biggest trading partner. But the project has also attracted the interest of a number of surprisingly big Western names. General Motors executives have made discreet visits, and even Coca-Cola looked at opportunities there before strict American rules about trade with an enemy state made the whole thing too difficult. For non-US companies, however, the opportunities are wide open. The Dutch bank ING and Hong Kong's Peregrine both have representative offices in Pyongyang, and last year Shell Pacific invested $500,000 in leasing a waterside plot in the Free Trade Zone.

The principal motivation is the potential of a frontier land on the edge of the world, the edge of politics, and on the verge of immense change. "Look at the map, and it makes sense," says a Shell Pacific executive. "China needs access to the sea and Japan is interested in a direct land bridge to Europe, apart from the shipping lanes. There's not a lot there now, but if you're taking a 25-year view then some very interesting things might happen.You could wait and wait, and one day discover that you've waited too late."