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North Korea Table of Contents

North Korea

Foreign Investment and Joint Ventures

Direct foreign investment in North Korea had been virtually absent until 1984, when North Korea made a surprising turnabout by proclaiming the Joint Venture Law. The twenty-six-article law on joint ventures appears to have been fashioned after China's law on the same subject. Joint ventures are allowed in "industries necessary for the people's economy," specifically electronics, automation equipment, metals, machine building, chemicals, food processing, clothing-processing industries, consumer goods, construction, transportation, and tourism. Overseas Koreans, particularly those in Japan, are singled out as parties who might wish to participate in joint ventures. Foreign participants are allowed to repatriate profits. There are no stated limits on foreign equity shares. A Ministry of Joint Venture Industry was created in 1988 but in 1990 was scaled down to a bureau, presumably under the Ministry of External Economic Affairs, which handled foreign market development, foreign investment, and joint ventures.

Attempts to accelerate the transfer of hoped-for and muchneeded advanced technology and the infusion of capital through joint ventures has had limited success. Until the early 1990s, North Korea was unable to attract major investment by West European or mainstream Japanese firms. Many factors influence the slow pace and low level of participation in joint ventures by firms other than those owned by Choch'ongryn (General Association of Korean Residents in Japan) (see Glossary)--an organization of North Korea-supporting Korean residents of Japan. In fact, the majority of joint venture deals have been concluded with Choch'ongryn firms. Of a total of 100 joint ventures reported toward the end of 1991, with a total capitalization of 13 billion yen (approximately US$96.5 million), over 70 percent involve Choch'ongryn firms.

Because the foreign debt problem still is unresolved, North Korea has not improved its shaky credit rating. As a result, Western firms consider any venture with North Korea highly risky. Although the joint venture law is liberal with regard to the repatriation of profits, the dearth of hard currency holdings make profit repatriation questionable, thus discouraging potential investors. Another inhibiting factor is the relatively small size of the domestic market, particularly in terms of per capita income. Moreover, the market's restrictive nature--with prices and distribution channels controlled by the state--make the prospect of successful penetration both dim and problematic.

Approximately ten joint ventures have Chinese participation; other partner countries include the Soviet Union and Bulgaria. The largest joint venture project is the Hamhng Rare Earth Separator Plant, which has both Chinese and Choch'ongryn participation and an investment of approximately US$10.25 million. There also are thirty overseas joint ventures; they are mostly in the former Soviet Union with a few in China. The majority of the firms are engaged in light manufacturing. The first joint venture with China, begun in 1989, was a marine fishery products firm located in Ch'ngjin that had an initial capitalization of US$1 million. The Hich'n-Gorky joint venture company run by the Hich'n Machine Tool General Works of North Korea and the Gorky Machine Production Complex of the Soviet Union was commissioned in October 1989. Other projects under way include a joint shipping company, a luxury hotel, a store selling soft drinks, a department store, an apparel plant, a restaurant, a silk fabric plant, and a gold mine. Both Kim Il Sung and Kim Jong Il attended an exhibition of goods produced by a joint venture with Choch'ongryn firms from Japan in P'yongyang on April 13, 1991; the first such event ever held in North Korea.

Data as of June 1993