The Buick assembly-line tour was not the most startling part of Kim Jong Il's unannounced trip to Shanghai last week. After all, the shock-haired North Korean leader has a well-known love for big, fancy cars. But what would the late dictator Kim Il Sung have said about his son's enthusiastic visit to the Shanghai Stock Exchange? For that matter, what would the son himself have once said? The last time he traveled to Shanghai, back in 1983, young Kim went home loudly scandalized by the "revisionism" he had seen--and those were the days when Deng Xiaoping's capitalist reforms had barely begun. This time Kim brought along a whole entourage of top officials for the express purpose of emulating China's success.

No one can be sure that North Korea's secretive leader will follow Deng's reformist path. But some of the sharpest analysts in Beijing and Seoul are convinced he's going to try. Last week South Korea's president, Kim Dae Jung, publicly remarked that North Korea "seems to aim at becoming a second China." Such a dramatic shift would reverberate around the world. One of the most troublesome foreign-policy challenges facing the Bush administration is to accurately assess North Korea's missile threat--along with Kim Jong Il's unprecedented peace moves, such as last year's historic North-South summit and Pyongyang's warm welcome to Madeleine Albright, the then U.S. secretary of State.

Kim is no democrat. On the contrary, he seems determined to keep North Korea's monolithic power structure intact. "He's changing because he has to," says a Western diplomat in Beijing. "His economy is a catastrophe." A senior Chinese government adviser says Kim regards the Chinese model as North Korea's only hope. "Kim Jong Il wants to be like Deng, who brought China out of isolation and lifted the state's grip on the economy while maintaining the party's political power," the official says. "He now believes he can copy China, introducing capitalism and outside contacts without risking democracy."

Kim has yet to unveil his blueprints for the job. But according to the Chinese adviser, who has high-level contacts with North Korean leaders and has been briefed in detail on their plans, the economic renovation would phase out collective farms, allow North Korean companies to form joint ventures with South Korean and Western partners and establish a series of "special economic zones." The first two, on the North-South border, could begin construction as early as this year, the Chinese adviser told NEWSWEEK. The plan would transform the cold-war bastion of Panmunjom into a high-tech center where North-South joint ventures would manufacture computers, TVs and cars.

The next step would be to create two SEZs on China's border, opposite the Chinese cities of Tumen and Dandong. Then two others would be set up on the coast, across the water from Japan. The Chinese official says Pyongyang is expecting the Japanese to help finance the project by paying as much as $5 billion in reparations for occupying the Korean Peninsula from 1905 to 1945. Tokyo isn't saying what it would pay to normalize relations, but the prospect of real peace in the region has to be tempting. And Beijing wants to help. Late last week Kim met with China's president, Jiang Zemin, for the second time in eight months. Han Zhenshe, a leading expert on North Korea at the Chinese Academy of Social Sciences, says Beijing has been offering for years to send in teams of advisers on market reforms. At last, he says, the Northerners are looking interested.

Can such a transformation really happen? North Korea is already changing in small but significant ways. A recent Chinese visitor says some Northerners are openly playing poker--and in private a few actually dare to take off their lapel-pin portraits of the Great Leader. Not long ago such conduct could have led to a labor camp. Observers in Seoul were particularly encouraged by Kim's New Year's message, in which he called for "new thinking" and effectively portrayed himself as the Kim Il Sung of the 21st century. But South Korean analysts say there are limits to how fast and how far the reforms can go. A drastic departure from Pyongyang's current economic policy would be tantamount to a repudiation of the senior Kim's ideas. "Kim Jong Il is quite different from Deng Xiaoping," says Lee Chung Min, a political scientist at Yonsei University. "Mao Zedong died in China. But in North Korea, Kim Il Sung is still alive in a way." Maybe someday he can rest in peace.