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North Korea seeks help opening up?

There was an interesting story in the German press a week ago claiming that the North Korean authorities had asked some German specialists to help develop a framework for attracting foreign investors. From Der Spiegel’s English site:

According to an article to be published on Saturday by the daily Frankfurter Allgemeine Zeitung, the communist regime in Pyongyang is preparing to open up the country’s economy to foreign investors. Moreover, it has enlisted the assistance of German economists and lawyers to lay the groundwork for the move.

“There is a master plan,” one of the economists involved in the plan told the paper. “They want to open up this year.” The FAZ did not identify the economist, but noted that he works at a respected German university and that he had advised other governments in Asia in the past.

Whether comes to anything is another matter, although news there suggests some tentative steps towards change. In terms of what might happen, this is worth noting:

The economist told the paper that the country is primarily interested in modernizing its laws relating to foreign investment. However, North Korea is not intending to follow the Chinese model, which called for the creation of special economic zones for foreign investors, the economist told the FAZ. “Rather, they are interested in the Vietnamese model, in which specific companies were chosen as recipients of investments,” the source said.

The “Vietnamese model” is to a large extent patterned on the South Korean model, in which certain large firms receive financial support from the state (cheap loans from development banks) and are encouraged to build themselves into export powerhouses (ie rather than begin by trying to attract foreign firms into the country to set up in export manufacturing, they tried to develop domestic heavyweights from the start).

That worked okay for South Korea, although the resulting dominance of the chaebol is an increasingly hot political issue.  It has not worked so well recently for Vietnam, where recipients of this support overextended themselves and hit serious trouble.

One obvious difference between South Korea and Vietnam is that in the former case, the firms were private sector businesses (albeit obviously ones with enormous political support). In Vietnam, they were state-owned enterprises without a solid commercial footing.

Given North Korea’s economic starting point of being far more socialist and authoritarian than Vietnam, that’s not very encouraging. However, given the power structure that prevails there, it may not be possible to try anything else initially.

Incidentally, as I’ve previously noted elsewhere, North Korea is not quite as economically isolated as you might imagine.

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