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DPRK biz opportunities luring entrepreneurs
The Democratic People's Republic of Korea (DPRK) is emerging as a hotbed for China's increasing investments overseas. "DPRK provides big market potential for Chinese products ... while Chinese investors have tremendous advantages in tapping the market," said Tian Hairui, a senior manager with Beijing Chaohua Youlian (CHYL) Cultural Exchange Co Ltd. CHYL is authorized by DPRK's Ministry of Foreign Trade and National Tourism Administration to facilitate investments and tourism between the two nations. A growing number of Chinese companies have invested in DPRK in the past two years, since the socialist country adopted its market-oriented reform and opening policies. Last month, Shenyang Zhongxu Group, a trading firm operated by Wenzhou-based merchants, signed a contract with DPRK's authorities to operate the No 1 Department Store of Pyongyang. The deal cost an estimated 50 million yuan (US$6.04 million). That has been the single largest foreign investment in DPRK from a country outside the Korean Peninsula. Zeng Changbiao, chairman of Shenyang Zhongxu, said the company has extensively researched DPRK's market for the past seven years. Now, he said, is the best time to invest in that country. "DPRK urgently needs Chinese textiles, garments and home appliances,?Zeng said. "DPRK is in close proximity, which guarantees us sufficient market demand and supplies." Shenyang Zhongxu is privileged: It has been granted permission to exchange foreign currencies in DPRK. In 2002, Nanjing-based Panda Electronics Group established a joint venture (JV) with a DPRK enterprise to produce computers. DPRK's government has purchased a substantial amount of the JV's computers. More Chinese investors, however, have chosen to pour their money into smaller projects, such as restaurants and/or small shops in major DPRK cities. Some have invested in small factories along the China-DPRK border. Li Yongqi, an official in Changbai, a small county in Jilin Province, told China Business Weekly many people in the county have opened small wood-processing workshops in DPRK. It is difficult to estimate the total investments in DPRK by Chinese entrepreneurs, because many Chinese investors do not register their businesses in China to avoid foreign currency ratification. But the nations?bilateral trade volume last year topped US$1 billion, up 38.7 per cent over the previous year. "The improving investment environment is the biggest stimulant attracting Chinese investments in DPRK," Tian said. Tian's firm has helped many Chinese investors research investment options in DPRK. He said he expects greater investments by Chinese entrepreneurs in DPRK over the next few years. After years of coping with international isolation and food and energy shortages, DPRK decided, in July 2002, to adopt market-oriented reform and opening policies. Reform measures have included massively increasing salaries and prices, easing price controls, giving enterprises greater autonomy and adjusting the foreign exchange rate. Last year, Pak Pong Ju was appointed DPRK's premier. Pak had previously been minister of the chemical industry. He worked in various economics-related fields for years. It is widely believed his appointment boosted DPRK's ongoing economic reforms. "The reforms have significantly increased people's abilities to consume, and have created greater market demand for Chinese products manufactured locally," Tian said. China's close relationship with DPRK gives Chinese investors a major advantage when they invest in the country, Tian said. In addition, China sent soldiers to help the Koreans push back foreign invaders several times in history, and China has tried diligently to link DPRK with the West, through the six-nation talks regarding the nuclear-weapon crisis on the Korean Peninsula. The facts help Chinese investors won favour with DPRK's officials, said Xu Wenji, a senior researcher with Jilin University's Academy of Northeastern Asia Studies. For a newly emerging market, good relations with local government officials are crucial, Xu said. DPRK's authorities do not impose restrictions on Chinese investors, but do so on entrepreneurs from other nations. For example, investments from other countries, including the Republic of Korea, must be placed in DPRK's special economic zones. In April, DPRK's leader, Kim Jong-il, visited China to inspect the reforms and economic progress in the Chinese mainland. During his talks with Chinese Premier Wen Jiabao, Kim said DPRK warmly welcomes Chinese investors. Wen, meanwhile, said China will not spare any effort in supporting DPRK's reform and economic construction. Tian said familiarity with DPRK's situation is another advantage for Chinese investors. "In the past 20 years, we have developed from a planned economy to a market economy," Tian said. "Therefore, average Chinese entrepreneurs can easily adapt to measures adopted by DPRK. They can even predict certain policy effects." Despite the huge market potential in DPRK and Chinese investors advantages, few big Chinese enterprises have invested in the northeastern Asian country. Tian said it is just a matter of time. In the beginning, all investors need time to become familiar with the market ?and its legal environment. Xu said DPRK's business laws are not fully developed, and there are few intellectual property right stipulations in DPRK's legal system. Such issues, so far, are not big threats to small investments, given the desire of DPRK's officials to embrace foreign investments. However, it poses some potential risks for major investments. Liang Qidong, a senior expert with the Liaoning Academy of Social Sciences in Shenyang, said there has been minor economic co-operation between China and DPRK, even though the political relationship has been close. The Chinese and DPRK governments should reach an economic and technological co-operation framework agreement as soon as possible, Liang said. He warned Chinese enterprises not to pour low-quality products into DPRK, as that could destroy their reputations. The biggest threat to investment is the insufficient supplies of energy, raw materials, food and, perhaps, the widening income gap among DPRK's residents, said Dong Xiangrong, a senior researcher with the Institute of Asia-Pacific Studies under the Chinese Academy of Social Sciences. DPRK's positive policies, aimed at stimulating economic development, will greatly increase the nation's production output, Dong said. But, she added, it will intensify DPRK's shortages in raw materials and food. |
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