By Shin Hyun-gook

``Good or not, we shared hometown water. Close or not we are brethren,” is an interpretation of a Chinese expression.

Literally, it means ``Whether the water is pure or not, we have shared it in the same town. Whether we are close or not, we have lived in the same town.” This was to remind the Chinese people of their similar origins. This expression was reportedly used by many Chinese authorities in the early 1980s in their efforts to persuade citizens living overseas to invest in mainland China. The country was in dire need of foreign capital and technology for her recently launched ``Reform and Openness Policy.”

China's economic performance in the last three decades has been impressive by most standards. The country was able to weather the storm of the Asian financial crisis in 1997 and the late-2000 financial crisis relatively unscathed, and has sustained rapid growth in the face of the global economic downturn. These achievements have added to the visible success and economic transformation that the decades of market-oriented reforms have brought to China. A key contributor to this growth and transformation has been the large inflow of foreign investment in the wake of the progressive opening of the economy since the early 1980s.

Foreign investment, particularly Foreign Direct Investment (FDI), has been an alternative for sustained development in many developing countries. Two months ago, the United Nations Conference on Trade and Development released The World Investment Report 2011. It forecast, barring any unsuspected economic speed bumps, FDI flow will recover to pre-crisis levels over the next two years. It noted that FDI inflows to devel¬oped countries and transition economies constricted further in 2010. In contrast, those to developing economies recovered strongly, and together with transition economies ― for the first time ― surpassed the 50 percent mark of all global FDI flows.

Scholars agree the main determinants of FDI are the size of the market, availability of skilled labor and wage-adjusted labor productivity, favorable exchange rates and tariff protection. There are other common determinants affecting the choice of location for FDI, for example, institutional and regulatory factors and policies, such as licensing systems, legal framework, and the quality of the bureaucracy. Therefore, the success of foreign direct investment depends in great part on the host government’s economic and financial policies.

Last month, North Korean leader Kim Jong-il visited Russia. This trip was made only three months after his visit to China in May. These visits were speculated by the media as highlighting the plight of the reclusive country. Kim's visit to Russia seems to have been triggered by the view that dependence on China alone is not enough to secure the cash he needs. According to Cho Bong-hyun of the IBK Economic Research Institute, ``North Korea urgently needs to restore power supply." During his visit to China in May, Kim Jong-il and his entourage toured a technology center in the south of Yangzhou and two other industrial facilities. The North Korean leader might have extended other requests to the leaders of China and Russia, but one thing is apparent, North Korea wants to secure capital and technology in order to sustain itself.

North Korea may seriously learn from China’s experience gained from executing their ``Reform and Open Policy.” Could North Korea extend to its southern neighbor a similar message to the Chinese saying, ``close or not, we are brethren?” Instead of triggering tension on the Korean Peninsula, she should exert more effort towards offering conciliatory messages, reminding us all of the fact that: “good or not, we shared hometown water.” Many South Korean firms have been operating factories in the second largest city of North Korea, Gaeseong and have been the source of continued revenue and technology transfer for North Korea.

According to an analysis by Yao Shumei, Korean investment in China has had a positive effect on employment, tax revenue, trade with other countries and industrial competitiveness for China. Most Korean FDI has been directed towards labor-intensive industries making a very positive impact on China's employment status. Korean FDI in China has promoted Chinese exports, contributing to China's trade surplus with other countries. Korean enterprises also contribute to China's tax revenue and enter China with capital and technology. Undoubtedly, they play an active role in industrial upgrades and the improvement of competition.

Technology transfer is among the many potential benefits foreign direct investment brings to developing host economies. Multinational firms often transfer firm-specific advanced production processes and managerial practices to their local affiliates and provide job training to their local employees, the latter of which also contributes to human capital development in the host economies.

The North Korean leader’s respective visits to China and Russia for solidifying continued diplomatic relations is a fine step forward. Whether or not China’s miraculous economic success is in part due to the rallying cry or sentiment of sharing hometown water is undetermined. But there is no doubt that its opening to global markets is what leads to their success. North Korea’s attempts seem halfhearted in comparison, only reaching out to a small contingency of neighbors, while neglecting their closest and perhaps most willing neighbor who has “shared hometown water.”

The writer is a chair professor of the Catholic University of Daegu and a show host on Arirang TV. He headed the Foreign News Division of the Korea Overseas Information Service. He can be reached at shinhyungook@hotmail.com.