Britain feels lure of Stalinism's last bastion

North Korea, the last of the Stalinist dictatorships, is not an obvious friend of Britain. With chronic shortages of fuel and food, an imploding economy, and simmering military tension with South Korea, it looks more like an international charity case than a potential City investor.

But, according to reports in the South Korean capital, Seoul, yesterday, this is exactly what it hopes to become: diplomats from Pyongyang last week asked their counterparts from London for increased diplomatic representation and for assistance in broaching British financial markets.

The request came at a high-level meeting between the two sides held in Warsaw, the latest in a series of discreet contacts intended to promote relations at a time of great uncertainty for the flailing Communist state.

British officials play down the significance of the talks but, according to diplomatic sources, they represent the latest stage in a concerted effort by the Foreign Office to bolster British involvement in a region hitherto dominated by Japan and the United States.

The two delegations were led by David Coates, head of the Foreign and Commonwealth Office's Far Eastern and Pacific Department, and Kim Chun Guk, his counterpart in Pyongyang's European Affairs Bureau. Among the subjects discussed were a request by the North Koreans for increased British participation in the Rajin-Sonbong Free Economic Trade Zone, an attempt to emulate Chinese experiments in free-market capitalism.

Shell, which has a small bitumen storage facility in the port of Sonbong, is so far the only British company to invest in the area, close to the north-eastern border with Russia and China.

Mr Kim also asked for an increase in the number of staff in Pyongyang's de facto diplomatic mission in the London office of the International Maritime Organisation, and for assistance in establishing a North Korean presence in British financial markets.

The British side renewed requests for the North to settle its long-standing debts to British companies, including the glass manufacturer Pilkington, which has never been paid for providing windows to a still unfinished hotel in Pyongyang.

An account of the meeting, which took place last Thursday, was leaked to local journalists by the South Korean foreign ministry, to the irritation of British diplomats. Tension has been high on the peninsula since September, when a North Korean submarine was washed up on South Korean shores while apparently engaged on a spying mission.

The incursion caused outrage in the South, which remains touchy about links between North Korea and third countries which bypass Seoul.

London and Pyongyang have conducted several meetings since Mr Coates took over the Far Eastern and Pacific Department. According to diplomatic sources, he is keen to use Korean diplomacy as a way of sustaining British involvement in Asia, especially after the handover of Hong Kong to China next summer.