DATE=2/7/2001

TYPE=BACKGROUND REPORT

TITLE=NORTH KOREA / ECONOMY

NUMBER=5-48969

BYLINE=ALISHA RYU

DATELINE=HONG KONG

CONTENT=

VOICED AT=

INTRO: North Korea appears to be preparing for a move toward economic reforms and greater openness. The leader of the poverty-stricken communist country Kim Jong Il took an unexpected industrial tour of China in mid-January that has been widely broadcast in the North. As VOA's Alisha Ryu reports from our Asia News Center, observers are debating about the reasons behind North Korea's sudden willingness to showcase China's economy to its people.

TEXT: It was Kim Jong Il's second secretive trip to China in less than eight months. At first, the January 14th trip appeared to be nothing more than extended talks with Chinese President Jiang Zemin and other top officials in Beijing.

But observers in South Korea were stunned to learn that the communist leader's itinerary also included a three-day visit to Shanghai a bustling port city in southern China that has become the hub of the country's booming market economy.

Two days after Kim Jong Il's return on January 20th, North Korean state television and radio began showing all segments of the reclusive leader's trip including visits to the Shanghai Stock Exchange and a number of industrial facilities. Television footage also showed Mr. Kim mingling with citizens in Shanghai's gleaming subways and visiting a Chinese worker's home filled with modern electronic goods.

The footage was a shocking contrast to the lives of most North Koreans who are said to lack even the most basic necessities. A combination of poor planning and a series of natural disasters have devastated the country's economy. By the North's own estimate, some 220 -housand people died of starvation and related diseases in the mid-1990s.

Most experts in South Korea believe Mr. Kim's Shanghai trip and subsequent media blitz were carefully orchestrated to prepare North Koreans for upcoming economic reforms - using China as the model. Hank Morris is the director of Industrial Research and Consulting in Seoul.

/// FIRST MORRIS ACT ///

Yes, he does see a model in China and its development pattern over the last 20 years. And that is natural because you still have a very authoritarian government in control there. I am sure that there were a lot of negotiations going on with the Chinese regarding potential support for his economic development programs because I don't think he expects the South Koreans and the Americans and the Japanese to underwrite his economic reform.

/// END ACT ///

Mr. Morris says because of lingering disputes, North Korea has been reluctant to significantly improve ties with the United States or Japan hampering the North's effort to secure substantial aid from both countries. And despite a historic summit in June between the leaders of the two Koreas and subsequent thawing of relations, Mr. Morris says Kim Jong Il is aware that South Korea is currently not in a position to give him all that he needs.

/// SECOND MORRIS ACT ///

We are sliding into a recessionary year in this South Korean economy. So the latitude for bestowing substantial amounts of benefits on the North in this time frame is hard to imagine. Looking at South Korean politics, absent some major reciprocity from the North, it would be very difficult for southern politicians to keep ponying up (offering) massive amounts of aid to the North.

/// END ACT ///

The chairman of the Foreign Bankers Group in Seoul, Edward Kelleher, agrees Mr. Kim now appears to be courting China his country's long-established political ally - as an important economic partner. But Mr. Kelleher says he does not believe North Korea is pushing aside South Korea, Japan and the United States in favor of China.

/// KELLEHER ACT ///

Most of the aid so far has come from South Korea, Japan and the United States. It has not come from China. The South Koreans are the most likely candidates to do much of the investing in the north. Hyundai already has investments. A number of the other chaebols (large South Korean conglomerates) have talked about setting up industrial parks along the Yellow Sea. So, I think it is just the beginning of a process for the North Korean government to allow different industries and businesses to come in, to allow more foreigners to come.

/// END ACT ///

Many experts are skeptical, though, that North Korea could succeed if it tried to imitate China's market economy. They say that the country of just 22 million people does not have the kind of natural resources and prospects for foreign investment that have made China's rapid economic development possible.

At the moment, North Korea cannot even produce enough electricity to light its streets let alone run large factories. It conducts less trade in a year than the South Korean capital, Seoul, does in 48 hours. (Signed)

NEB/HK/AR/JO