China proposes huge investment in N.Korea

AFP, Friday 7 Jan 2011

China plans to establish free trade zone with North Korea

China has proposed a huge investment deal to revive North Korea's faltering economy, a report said Friday, amid an international drive to coax Pyongyang back to nuclear disarmament talks.

China's state-run Shangdi Guanqun Investment plans to invest about $2 billion in a project to build up a North Korean free trade zone into a regional export base, the JoongAng newspaper said.

A memorandum of understanding was signed with Pyongyang's Investment and Development Group on 20 December, it said.

The two sides hope the area in Rason near the North's border with China and Russia will be the biggest industrial zone to be built in Northeast Asia in a decade, the daily said, citing documents related to the deal.

Pyongyang issued a decree in January to upgrade the status of Rason, formerly Rajin-Sonbong, which became a special economic zone in 1991 but never fulfilled its proposed role as a transport hub.

Yang Moo-Jin, a professor at the University of North Korean Studies, said Beijing appeared to have arranged the deal as the impoverished North wants economic aid and other incentives before returning to long stalled six-party nuclear talks.

"If it is true, the investment represents Chinese incentives to North Korea in return for its commitment to denuclarisation and peace on the peninsula," he said.

Tough United Nations sanctions brought by the North's pursuit of ballistic missiles and atomic weapons have hurt its economy, restricting the communist state's access to international credit.

But analysts say any massive economic assistance from China may come only after it gets strong commitment from Pyongyang about denuclearisation.

The deal was described as a strategic joint project, the daily said, adding North Korean leader Kim Jong-Il had apparently discussed it with Chinese leaders.

"The project demonstrates the start of full economic cooperation," which has been badly sought by Pyongyang to recharge its economy, Yang said.

While the project is part of Beijing's economic aid to Pyongyang, Chinese businesses also expect to reap huge benefits, the daily said.

The project calls for the construction of coal-fired power plants, roads, piers and an oil refinery in Rason, it said.

It quoted an unnamed Shangdi Guanqun Investment official as saying: "We have a deep interest in North Korea's ample natural resources."

Shangdi Guanqun Investment is a state firm specialising in oil processing, natural resources and financial services. Its North Korean partner is in charge of developing free trade zones.

The North Korean state has been cautious in opening its doors to the outside world. But it has strived to revitalise Rason through cooperation with China and Russia.

China, Pyongyang's sole major ally, has actively explored investment opportunities in North Korea and secured the rights to much-needed natural resources such as iron ore and coal.

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