SEOUL (Reuters) - Reclusive North Korea upgraded the status of a city it has designated as a foreign investment zone, in what may be another in a series of attempts by the destitute state to regain control of the faltering economy.
In the past few weeks, North Korea has redominated its currency and clamped down on the holdings of foreign cash in moves analysts said were aimed at decreasing the power of a burgeoning merchant class and reasserting central government control over the economy.
"The city of Rason has become a special city," the North's KCNA news agency said in a brief dispatch on Monday.
Rason, also known as Rajin-Songbong, was designated by North Korea as a free trade zone in 1991. It is in the northeast and lies near where North Korea, China and Russia converge.
Until the recent currency moves, North Korean merchants who work outside the government's centrally planned economy had been gaining ground in trading for goods in China.
Meanwhile the Rason trade project had been an abject failure as foreign investors stayed away due to worries about doing business with the paranoid and mercurial state or being barred from doing business that may be in violation of sanctions banning trade with the global pariah.
But the Rason project was given new life when the North's official media reported about three weeks ago that leader Kim Jong-il visited the city for the first time since it became a trade zone nearly 20 years ago, and said he wanted to see it flourish.
North Korea's estimated $17 billion a year economy was dealt a heavy blow by fresh U.N. sanctions imposed after its nuclear test in May. The sanctions were aimed at cutting off its trade in weapons, which provide Pyongyang's leaders with up to an estimated $1.6 billion a year.
Analysts have said North Korea has been pressured into reviving dormant disarmament-for-aid nuclear discussions in the hopes of securing money that could prop up Kim's government.
Adding to the economic strain, North Korea's leaders have launched a heavily touted campaign to build "a strong and prosperous nation" by 2012.
The state needs to deliver tangible improvements after building expectations so high, which is going to be costly, analysts said.
Leader Kim, 67, is in additional need of foreign currency to finance measures that would build support among his senior cadres for a succession plan that would elevate his youngest son as the heir apparent in Asia's only communist dynasty.