Risky Business.

(2 of 2)

Deals in the North do have a marked tendency to go south. For example, a Thai telecom's plan to develop a mobile-phone network faltered after Kim's regime banned cell phones in 2004. Kelvin Chia, a Singapore-based lawyer who has worked with North Korean joint ventures since 2004, says many investors were spooked by the country's October 2006 nuclear test and the international fallout. "One of my clients was looking at going ahead with a substantial investment in a mineral-processing project," Chia says. "Before he went in, he had an indication from financiers it was doable. But then the nuclear issue blew up, and it became impossible."

In addition to the considerable political risk in partnering with a charter member of the "axis of evil," there's the North's underwhelming track record when it comes to development schemes. Casting about for new investors after the collapse of the Soviet Union, the D.P.R.K. in the 1990s started a free-trade zone in Rajin-Sonbong, a remote area near the country's northeastern frontier. The experiment failed: the zone didn't attract much beyond a few hotels and a casino catering to Chinese tourists. Another special economic zone in Sinuiju, across the Yalu River from the Chinese city of Dandong, faltered in 2002 after the Chinese-Dutch orchid entrepreneur handpicked by Kim to run the place was arrested by China for fraud.

The North was emulating an obvious precedent: Shenzhen, the special economic zone where China first experimented with capitalism. In January 2006, Kim made a rare foreign visit, traveling by train (he reportedly abhors flying) to the booming southern Chinese city. Kim may see China as more than a path to prosperity. "To him it's an assuring message," says Mansourov. "Even if you open up economically, you can still maintain political control for his regime and his family."

Yet just as often as North Korea has opened the door a crack, it has slammed it shut. In 2005, for instance, the government suddenly reversed its decision to allow private markets, forcing many North Koreans back into food-rationing. And at April's meeting of the Supreme People's Assembly, Kim's government sacked Prime Minister Pak Pong Ju, who had led a Cabinet-level economic think tank and was seen by some as friendly to reformers. "All of a sudden the wind seems to have gone out of the sail," says Brad Babson, a former North Korea specialist at the World Bank.

Real reform, Babson says, would require North Korea to abandon its pipe dream of agricultural self-sufficiency--with a dearth of arable land, the country is literally dirt poor--and invest in labor-intensive manufacturing. But rebuilding the country's roads and ports and installing a reliable electrical grid would take billions of dollars in international loans--hardly a bright prospect given the country's history of defaulting on its obligations.

Skeptics, meanwhile, see North Korea's current eagerness for investment as another in Kim's endless series of feints designed to keep his opponents off balance--and the foreign aid handouts flowing so the country stays fed. "The North Korean economic approach has always been to extract resources from outsiders," says Nicholas Eberstadt, a political economist at the American Enterprise Institute and the author of The North Korean Economy. "It's like what they say about champagne: In success, you feel like you deserve it. In failure, you need it."

The possibility of failure is omnipresent. According to South Korea's central bank, the Bank of Korea, the D.P.R.K.'s economy shrank 1.1% in 2006 after eight years of moderate growth. Under pressure from international sanctions, nearly every sector of the North's lilliputian economy contracted, with new construction plummeting 11.5%. Torrential rains in August, meanwhile, destroyed an estimated 11% of the country's rice and corn crops, again raising the specter of a mass famine like the one that killed as many as a million people in the mid-1990s.

At six-party talks in Beijing in late September, North Korea agreed to dismantle all its nuclear facilities and disclose the scope of its nuclear program by the end of the year in exchange for 950,000 tons of fuel oil or the equivalent in economic aid. And at this month's summit in Pyongyang between Kim and South Korean President Roh Moo Hyun, the two nations agreed to pursue a formal peace treaty to officially end the Korean War and made broad, if vague, plans for increased economic cooperation.

But there are no certainties on the Korean peninsula. Should Pyongyang renege on its promise to dismantle its nuclear program, crippling U.S. sanctions will almost certainly continue. And South Korean presidential elections in December could usher in a new government with a less conciliatory stance toward its deadbeat neighbor. To see just how far North Korea still has to go, you need only visit the Sino-Korean Friendship Bridge linking the booming Chinese metropolis of Dandong with the sooty failed economic zone of Sinuiju. Commerce between the two nations is limited to a trickle of trucks on the bridge's single lane. At night, the contrast is vividly instructive: Dandong's bustling waterfront turns into a riot of neon, while Sinuiju is pitched into nearly total blackness. How will North Korea ever pull itself out of the dark ages if it can't even keep the lights on?