Few countries are more troubled than North Korea. After decades of economic isolation, one-party rule, and natural disasters such as floods this spring, it's little surprise that the economy today is no bigger than it was 20 years ago. In 2006 gross domestic product shrank by 1.1%, and it's likely to remain flat this year.
What may be more surprising is that the North appears to be on the brink of a turnaround. Although any improvement in living standards will certainly be modest, the Oct. 2-4 summit between South Korean President Roh Moo Hyun and the North's "Dear Leader," Kim Jong Il, may lead to better relations with the West. Coupled with an international agreement on Oct. 3 to begin dismantling Pyongyang's nuclear facilities, the talks have accelerated foreign interest in the North's plentiful and inexpensive workers. If North Korea opens up, "it will become one of the best investment destinations in Asia," predicts Jang Hwan Bin, senior vice-president at Hyundai Asan, which runs a resort at Mt. Kumgang in the North.
While it's hard to say whether life is really getting better in remote rural North Korea, Pyongyang and nearby areas appeared relatively prosperous on a recent visit. Despite the spring floods, the harvest seems bountiful, with rooftops in the countryside covered with yellow ears of corn drying in the sun. In the cities, loosely regulated private markets are springing up, offering everything from shoes and shampoo to televisions and DVDs.
The Chinese are a big part of the shift. Trade between the two countries is expected to hit $1.7 billion this year, and mainlanders now make up the majority of foreign businesspeople in North Korea. In recent years they have invested more than $45 million—serious money in the North— in retail, food, manufacturing, mining, and more. "Labor in North Korea is very cheap, so it's attractive to investors," says Han Lixin, a native of Dandong, a Chinese city just across the Yalu River from North Korea. Han runs a Web site promoting investment in the North and has signed up 300 Chinese companies as members.
It's not just Chinese businesses that are discovering the North. Visitors from China make up the bulk of tourists in North Korea, and they're almost everywhere: gawking at the towering monument to "Great Leader" Kim Il Sung, listening to students recite revolutionary paeans at the Children's Palace, and playing the tables at the casino in the basement of Pyongyang's Yanggakdo Hotel. "The economy, of course, is not so good, but this country is very interesting," says a smiling thirtysomething Chinese businessman.
South Korea is doing its part, too. Roh agreed to bankroll billions of dollars in infrastructure upgrades in the North. Among the first projects will be a rail link to the North Korean city of Kaesong, a special economic zone where South Koreans now employ 16,000 Northerners making goods ranging from skirts to wristwatches. A second such zone is in the works, and South Korea's Daewoo Shipbuilding & Marine Engineering may invest as much as $150 million in a shipyard in the North. Says Choi Soo Young, an economist at Seoul's Korea Institute for National Unification: "China and South Korea will provide breathing room as Pyongyang tries to dig out of its economic mess."
By Dexter Roberts and Moon Ihlwan