More than 40 South Korean companies have applied to set up factories in a new industrial zone in the city of Dandong, which borders North Korea's proposed capitalist-style special administrative region (SAR). The director of the investment bureau of Dandong's eastern harbour, surnamed Yao, said yesterday that the city signed an agreement with the South Korean government in Seoul on Saturday to build the one square km zone close to the Yalu river, which forms the border with North Korea. 'The first phase will have 290,000 square metres, which will be ready by June next year,' he said. 'More than 40 small and medium-sized South Korean firms have signed letters of intent to invest in the zone.' The companies will produce textiles, clothes, electronics, shoes, food and other labour-intensive goods. Land leases run for up to 50 years, at a cost of up to US$60 (HK$466) per square metre, cheaper than in other cities in Liaoning province. Dandong has a port and plentiful resources of water, timber and sea products. It is the first Chinese city on the railway line linking Kaesong and Pyongyang in North Korea with China, Mongolia and Russia. Work on re-connecting the railway line between North and South Korea resumed last month and is due to be completed by the end of the year. Companies will then be able to move goods by rail between Dandong and Seoul, 420km away. Across the Yalu river from Dandong is Sinuiju, where North Korea has proposed building its first SAR, to be headed by Chinese tycoon Yang Bin, now under house arrest in Shenyang. An official of the Korea Trade Investment Promotion Agency in Beijing said on Monday that the Dandong zone was not related to the SAR project. 'Our companies initially invested in China in the northeast because it was closest to Korea, but now they have invested all over,' he said. 'Their target is the Chinese market, not North or South Korea. Dandong is nothing special.' He played down the significance of the rail link as a factor in investment, saying China had many ports available to ship goods to South Korea or for export. 'We take a wait-and-see attitude toward the new SAR. We have not seen its detailed investment policies. 'North Korea has just started its economic reforms. 'Our firms can invest in Kaesong, which is closer to South Korea.' Dandong is an enthusiastic supporter of the SAR, seeing it as a potential commercial opportunity.