Research On Present Condition Of Investment And Prospect For North Korea Of South Korea And China

The economy of North Korea does not show positive economic change according to the change of China and Russia. The reason North Korea can't cope with the change is North Korea has closed economic policy such as"independent construction of na-tional economy"line and"ordering economic system".Foreign direct investment can be defined as business activity that investment company participates in management directly and transfers capital, management tech-nique, technology and trade mark to foreign country. From the viewpoint of macroeco-nomics capital movement, foreign direct investment is business activity that marginal revenue rate of capital of the country which has low is transferred to the country which has high. The theory related to foreign direct investment includes Williamson's trans-action cost theory and G. MacDougall and Kemp's international long term capital movement theory etc. With relation to business0 that pursuits profit, international capi-tal movement depends on the difference of marginal revenue rate of capital and it's motive is classified as strategic, behavioral, economic and financial motives.In the early 1970's, North Korea was faced with the change of foreign open-door policy with the increase in trade with western countries because aid of socialist states discontinued with the conflict between China and U.S.S.R in 1960's. However, Oil cri-sis, the drop in the price of mineral, the surge in the price of imported raw materials in 1970's caused North Korea's economy to be faced with difficulty and since 1975, North Korea has been in insolvency state of foreign loan and to date, North Korea has difficulty with foreign trade. At the beginning of 1980's North Korea announced trade promotion policy continually such as diversification of trade and credit oriented policy and made an attempt to change by establishing and announcing"joint ventures law"in September 1984 but because of inflexibility of North Korea's economy system and in-adequacy of law system, North Korea was unable to attract the capital of western coun-tries. Then North Korea attracted capital from pro-North Korean residents'league in Japan but showed little result.At the beginning of 1990's, North Korea was faced with economic crisis such as 4 year minus growth. Economic crisis was caused by in part climate effects such as flood largely ordering planned economy system that is vulnerable to technology develop-ment and discontinuation of aid trade by socialist states such as China and Russia. In order to overcome economic crisis, as foreign economic policy, North Korea an-nounced the establishment of Najin-Sunbong free trade exclusive industrial zone that in part imitated China's exclusive industrial zone and pushed ahead open-door policy but did not achieve big success.From 1998 until 2001, overseas trade of North Korea increased but in 2002, as nuclear issue of North Korea appeared, import seemed reduced temporarily and then import showed increase again. A significant change in North Korea's overseas trade is the expansion of trade volume with South Korea and China. For example, in 2007, South Korea and China account for 80% of North Korea's foreign trade. South Korea and China have considerable influence on North Korea's economy. North Korea's for-eign trade relying on some countries will have difficulty maintaining economic stabil-ity because North Korea's foreign trade is influenced significantly by the change of trade partners. In general, investment attraction environment is considerably poor. North Korea's heavy industry oriented structure, inadequacy of social overhead capital and legal system have negative influence on North Korea's economy, though North Korea has rich human and natural resources. Today, North Korea's industrial structure shows that agriculture, forestry, fishing industry and mining & manufacturing industry account for over 50% of North Korea's industry which is applicable to the structure of underdeveloped countries. Because the reserve of mineral has economic feasibility both in kinds and in amounts, it has positive influence on companies and nations which intend to invest in North Korea.North Korea's investment attraction stage is early one which depends heavily on labor–intensive industry, natural resources and processing trade. Accordingly, The in-vestment in the right of using social overhead facilities and mining rights which is im-plemented by China, and entering North Korea of South Korea's labor intensive indus-try can be closely associated with the investment in social overhead capital which can lead to improvement of productivity. In this stage, North Korea should make an effort to jump into next stage by attracting investment by South Korea, China, and existing and new trade partners.South Korea and China may have different objectives in investing in North Ko-rea. They can have the same objectives in political stability and marketability but South Korea's investment in North Korea focuses primarily on tourism and consign-ment processing and China's investment focuses largely on the development of re-sources and the use of social overhead capital. Investment policies of South Korea and China can be different but ultimate goal of company's investment is to make profits. Policy should be established noting the fact that investment to make profits is based on the market economy.Gaesong industrial park in South-North economic cooperation in Korea is partly exclusive industrial zone by legal institutionalization and is the business that pro- duces various goods by utilizing comparative advantage between South and North Ko-rea and it can be touchstone for South Korea's investment in North Korea. Gaesong industrial park hires North Korea's 39,000 workers and the minimum wage is over 2,100,000 dollars, and if 38 companies under construction are prepared, the scale will increase considerably. Though ripple effect on South Korea's economy of Gaesong industrial park is insignificant in terms of overall South Korea's economy, if full-scale production is made after completing total process, Gaesong industrial park can have a significant effect on South Korea's economy.Mt.Kumgang tourist industry which was promoted by Kim daeJung government launching in February,1998 was non-governmental interchange cooperation and the business which is made an contract between Hyundai Asan in South Korea and Asia Pacific Peace Committee in North Korea and Mt.Kumgang tourist industry has con-tributed to economy and peace in both South Korea and North Korea and has positive influence on international credit. Mt.Kumgang tourist industry brought Hyundai Asan a lot of deficit but by realizing travel by land and Kaesong industrial park Hyundai Asan made a profit. Mt.Kumgang tourist industry has discontinued since a South Ko-rean tourist was killed in July, 2008.South Korea's investment in North Korea began with top priority"unification"of divided country and is significantly influenced by political and military situation. Be-cause South Korea's investment in North Korea has the risk of being affected by exter-nal factors of economy, government has played an important role in solving the prob-lem that investment company can't solve on its own. Government should play a role in public sector industry and the sector that needs legal and institutional support of North Korea. Government should play a comprehensive role within the range that does not damage primary economic principle which company's investment is basically eco-nomic activity of private company.China's investment in North Korea is market oriented one that is primarily con-sidered China's position and profit and the investment is primarily related with devel-opment of resources and the use of social overhead capital. If China makes allowance for North Korea's economic dependence on China's economy and encourages North Korea to raise economic independence, the cooperation between North Korea and Chi-na will be improved more and more.In order for North Korea to accomplish economic development by attracting for-eign direct investment, North Korea should be transferred to market economy through reform and open-door policy. Though full scale opening is impossible to maintain unique system, Company's economic activities for foreign investment should be con-ducted freely. In addition, North Korea should expand the attraction of foreign invest-ment that is concentrated in Korea and China to the other countries such as U.S. and Japan etc.