North Korea has set up a special economic zone in the north-western city of Sinuiji on the Chinese border.

It is the latest sign that the Stalinist country, which is classified as a "terrorist" state by the US, is restructuring its economy.

The state-run Korean Central News Agency (KCNA) said on Thursday that a decree was issued on 12 September that would set up the "special administrative region".

"The land and natural resources of the region belong to [North Korea] and the state allows the region to be turned into an international financial, trade, commercial, industrial, up-to-date science, amusement and tourist centre," KCNA reported.

Some analysts believe North Korean leader Kim Jong-il is copying economic reforms in China two decades ago when it set up economic development areas in coastal regions.

The announcement followed an unprecedented North Korea-Japan summit and the start of demining work along a stretch of the demilitarised zone (DMZ) with South Korea to reconnect the two countries by rail.

Free market experiment

North Korea's centrally-planned economy has collapsed since it lost the Soviet Union as a trading partner over a decade ago.

The crisis has been compounded by a series of floods and other natural disasters.

Famines have killed hundreds of thousands and the government has been forced to accept outside aid to help feed its 22 million people.

North Korea started experimenting with capitalism in the mid-1980s when it set up its first special economic zone, close to its border with Russia.

But the Rajin-Sunbong zone failed to attract foreign investors due to lacked of infrastructure.

Sinuiji, which serves as a hub for trade with China, has a population of 400,000 and has chemical, metal and food factories.