Mon, Aug 16, 2004 page10

• Entrepreneur to gamble on N Korea

  HIGH STAKES Zeng Chang-biao of China has signed a deal to invest US$6 million for rent on a building in Pyongyang, which he will turn into a shopping center

  • REUTERS
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  A young Chinese millionaire entrepreneur is betting on a long shot. He believes reforms in isolated communist North Korea have given people cash to buy imported soap and toothbrushes at a department store he plans to open in the capital, Pyongyang.

  Zeng Chang-biao, 35, has signed a deal to invest 50 million yuan (US$6 million) as 10 years rent on a five-storey building in central Pyongyang next to Kim Il-sung Square. It will be renovated to create a shopping center with a nine-floor office tower attached.

  "This will be the biggest and best shopping centre in all of North Korea," Zeng said.

  The department store is scheduled to start business by the end of the year, its shelves stocked with a variety of Chinese-made consumer goods, the likes of which have been nearly impossible to procure in impoverished North Korea for decades.

  "We will mainly bring in light industry products like toothpaste, toothbrushes, towels, small tools and electric household appliances, clothes, shoes and caps," Zeng said.

  Zeng has not rushed in where other businesses fear to tread. He has been visiting the secretive country since 1997 and said he had been struck by changes that followed tentative economic reforms launched in July 2002 when markets were for the first time allowed to set prices for many goods and services.

  "North Korean people's salaries have been raised by a large amount so they have money to buy things they want," Zeng said. "Plus, because there were no consumable commodities available in the past, people saved all their money," he said.

  Zeng's plan is to lure North Koreans to unearth their savings from under their mattresses and to go for some retail therapy.

  "North Korea has limited resources, while China has excessive light industry production," said Zeng, who made his first million at just 22 operating a textile company in northeast China.

  "For ordinary North Koreans, the import of Chinese goods will cause prices to drop and they will be able to buy what they want. It also gives China a new way to export overstocked commodities."

  Zeng, from the southeastern town of Wenzhou that is the heart of private enterprise in China, is taking a tried and tested Chinese business model into communist North Korea.

  He is organizing 300 businessmen from his hometown of Wenzhou and each will operate their own stalls within the store. Plus he will profit from cheap labor.

  The sales counters will be manned by more than 3,000 North Korean employees. "Their wages are very low, only 70 or 80 yuan (US$9) per month," he said.

  The government-sanctioned deal calls for Zeng's store to pay five percent in sales tax and a five-percent import tariff.

  "The prices of the goods will be five times higher than in China, so our profits should be quite high," he said, explaining how he expected the move to pay off for all sides.

  And trade will be two-way.

  "We will import commodities such as gold, silver, copper and silk from North Korea," Zeng said.

  Zeng had not failed to notice that the North Korean economy, however small, grew for a fifth consecutive year in 2003, helped by the tentative market reforms -- although energy shortages and an outmoded production base make the outlook uncertain.

  "North Korea is the last virgin land among socialist countries and its economic development is inevitable," Zeng said.

  "We've been watching the country closely for seven years, figuring we would be martyrs if we got in too early -- and lose all the opportunities if we got in too late," Zeng said.

  North Korean leader Kim Jong-il made a rare personal endorsement of the economic changes in June, telling factory workers that profit was good.

  Economists have differed over just how far the reforms have helped North Korea's economy because higher wages have been accompanied by soaring prices as a result of the market-inspired changes.

  And Pyongyang's emphasis has long been on its military. North Korea maintains the world's largest standing army, while most of its 23 million people are short of food, clean water and medical services.

  Few shops other than government-run suppliers of staple goods exist on the usually empty streets of Pyongyang.

  But the new store could prove an important step towards North Korea's further economic opening, Zeng said.

  "Once the country opens to the outside, it will move even faster than China because they are eager to develop as rapidly as China has," he said.
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