North Korea economy stuck in slow lane

SEOUL (Reuters) - Leaders of South Korea's biggest companies on Thursday saw the pride of North Korea's auto industry, which turns out vehicles named "Whistle" and "Cuckoo" at an annual rate equal to what Hyundai Motor makes in three hours.

The visit underscored the economic gulf between the two countries formed from the ashes of World War Two and then devastated by their fratricidal 1950-1953 Korean War.

South Korea has emerged as one of the world's economic giants, while the communist North, once richer than its neighbor, has become a basket case.

The North's GDP -- estimated to be 21.2 trillion won ($23.21 billion) by the South's central bank -- ranks around that of war-torn Sri Lanka, and is less than 3 percent of the South Korean economy.

"The most important thing in unification is getting rid of the economic gap," said Kim Young-yoon at the South's Korea Institute for National Unification.

The Bank of Korea said the North's destitute economy sank further last year and is weaker than it was nearly 20 years ago. It has been crippled by decades of mismanagement and further weakened by devastating floods a few months ago and U.N sanctions over its first nuclear test almost exactly a year ago.

At only the second summit of the leaders of the two Koreas, South Korean President Roh Moo-hyun pledged economic cooperation to rebuild parts of the North's dilapidated infrastructure.

South Korea points to a joint industrial park in Kaesong, just north of one of the world's most militarized borders and created after the first summit in 2000, as an example of economic integration teaching North Koreans market principles.

One analyst described this approach as "unification on the installment plan."

The alternative to the go-slow approach would be a bill likely to total hundreds of billions of dollars to quickly absorb the North, which could wreck the South's economy -- the world's 13th largest.

The tour of North Korea's Pyeonghwa Motors plant could hardly have impressed visiting Hyundai Motor Chairman Chung Mong-koo, who saw cheap cars being made at a pace slower than before Ford made its Model T by assembly line.

But Pyongyang is hoping for a future where both work together to compete in the global economy.

A North Korean economic official called for using the South's technology and equipment for joint exploration of its rich mineral resources, estimated by Seoul to be worth 2 trillion won ($2.19 billion).

However, some have criticized the South's current approach as too top heavy, making it possible for the North's leaders to siphon off funds while not focusing enough on profit.

Asia analysts Stephan Haggard and Marcus Noland wrote in a recent paper a better example for economic development may be that of communist China, whose firms are finding business partners in the North to turn out goods at a reasonable price that can be sold at competitive prices.

"China's interaction with North Korea appears to be increasingly on market-oriented terms, while South Korea's involvement has a growing non-commercial or aid component," they wrote.

(With additional reporting by Jessica Kim)