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
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