North Korean Economy Watch

Korea Times (h/t Tim Beal)
Lee Hyo-sik
9/4/2007

Shares of companies engaging in an array of inter-Korean economic cooperation projects have shot up this week, following the news on Sunday that North Korea agreed to dismantle its nuclear weapons development program by the end of the year.

Most firms, which will take part in sending electricity to the Stalinist country in return for the dismantlement of its nuclear reactors, saw their stocks rise to their daily limit up over the past two trading sessions.

Also, shares of those companies operating in the Gaesong Industrial Complex have rallied on expectations that easing of geo-political tensions associated with North Korea will further boost economic cooperation between the two Koreas.

But analysts cautioned that investors should refrain from purchasing inter-Korean project related stocks at the moment as share prices will likely fall once the North Korean hype subsides.

After two days of negotiations with his Pyongyang counterpart Kim Kye-gwan in Geneva, U.S. Assistant Secretary of State Christopher Hill told reporters Sunday that North Korea had agreed to declare its nuclear stockpile and disable its atomic weapons programs by the end of this year.

Also, North Korea’s Foreign Ministry said Monday that the U.S. had decided to remove Pyongyang from its list of states sponsoring terrorism.

Shares of Ewha Technologies Information, a power equipment maker, hit its daily limit up on Monday, rising nearly 15 percent to 1,965 won from last Friday’s close of 1,710 won. Ewha shares rose 1.78 percent to close at 2,000 won in Tuesday’s trading session.

Romanson, a wrist watch manufacturer, which operates plants in the Gaesong Industrial Complex, saw its share price increase 14.9 percent to 3,400 won on Monday from 2,960 won last Friday.

“North Korea related stocks went up sharply early last month after the announcement of the second inter-Korean summit. And now, the latest development surrounding the reclusive state is providing a further boost to those shares,” said Lee sun-yup, an analyst at Goodmorning Shinhan Securities.

He said a large number of investors are snatching up shares of companies involved in North Korean economic projects when the local stock market has lost its directions amid volatile investor sentiment in the wake of U.S. subprime loan default risks.

He said investors should be picky, as it will take time before these companies’ profits will benefit from the easing of tension between the North and South.

“It’s risky to jump on the bandwagon at the moment as such shares will likely come down soon as in the past when the North Korean hype dies down and the market regains solid upward momentum,” Kim said.

He advised investors to choose North Korea related shares based on their corporate earnings and long-term prospects.

Reuters
(Hat tip DPRK Forum)
8/29/2007

Nigeria will send a high-level delegation to North Korea to discuss attracting investment in Nigerian energy and natural gas, President Umaru Yar’Adua has said.

Nigeria is the fifth largest oil supplier to the United States and an ally of Washington, but it also maintains warm relations with the secretive Stalinist state as a fellow member of the Non-Aligned Movement.

“I will direct the minister of state for energy to visit your country for discussions on energy and gas, a sector where we have an emergency,” Yar’Adua told the outgoing North Korean ambassador to Nigeria, King Pyong Gi, on Tuesday.

Yar’Adua, who took office in May, intends to declare a state of emergency in energy and power to accelerate development of the sector, which has been mismanaged and starved of investment for decades.

Yar’Adua promised to encourage high-level visits between the two countries, the state-run News Agency of Nigeria said.

In 2004 North Korea, which tested a nuclear device for the first time in October 2006, offered to share missile technology with Nigeria as part of a wide-ranging military cooperation agreement. It is unclear if it went ahead after Washington opposed it.

Ambassador Pyong expressed North Korea’s support for Nigeria’s bid for a permanent seat at the U.N. Security Council, the agency said.

Institute for Far Eastern Studies
NK Brief No. 07-8-29-1

A Chinese manufacturer of artificial fingernails has become the first non-Korean business to set up shop in the Kaesong Industrial Complex. The (South) Korea Land Corporation announced that on August 27, a contract for entry into the Kaesong Industrial Complex was concluded with Dashing Diva, the South Korean subsidiary of Tianjin Jci Cosmetic, which had applied for a plot in the 1st stage of the KIC. Another firm, a plywood manufacturer located in Linyi, a city in China’s Shandong province and the hub of the country’s lumber industry, is preparing to close a contract for a 2000 square meter plot by the end of August.

In order to enhance the global image of the KIC, six plots in the first stage of the complex, designed to house small and medium-sized manufacturers, have been slated specifically for foreign manufacturers. In the event a foreign enterprise wishes to do business in the KIC, it must have a South Korean subsidiary with which a land development contract can be drawn. However, when applications were solicited last June, not a single company showed interest, so the lots were offered contract ad libitum beginning at the end of July.

In addition to these Chinese companies, representatives of the Kimberly-Clark Corporation, a U.S.-based global leader in health and hygiene products, met with KIC officials at the ROK Ministry of Unification on August 14 in order to reach an understanding on investment issues. Yuhan-Kimberly Ltd., Kimberly-Clark Corporation’s Seoul-based subsidiary, oversees all of the corporation’s Northeast Asian branches. Yuhan-Kimberly Ltd. CEO Moon Kook-hyun stated that the corporation’s Beijing plant was interested in a lot in the KIC, after Kimberly-Clark Corp. CEO Thomas Falk visited the complex earlier in the year.

Investment by foreign companies has special meaning for the inter-Korean joint project, as it reflects international confidence in the complex. In particular, when taking into account the importance of U.S.-DPRK relations, investment by the multinational Kimberly-Clark Corp. could have even greater meaning.

Joong Ang Daily
Limb Jae-un
8/29/2007

Less than 10 percent of companies in Kaesong have stayed five years.

Hundreds of companies are lining up to operate in North Korea’s Kaesong Industrial Complex, but an economist said in a seminar yesterday that the current economic cooperation with South Korea won’t bring any significant changes to the communist country.

More than 200 companies have signed a contract with the Korea Land Corp. to join the 33 domestic companies currently operating in the industrial park, according to Kim Du-bok, an employee at the state-owned company.

Korea Land Corp. is responsible for assigning space in the industrial complex.

Among the new companies are a couple of firms with foreign connections that hope to open next year.

A Korean subsidiary of Tianjin JCI Cosmetic Corp., a Chinese producer of synthetic nail tips and other cosmetic goods, agreed Monday to lease space in the section allotted for foreign companies.

“Tianjin JCI Cosmetic Corp. and its Korean subsidiary, Dashing Diva, signed a contract to lease a piece of land,” Kim said yesterday.

To operate at the inter-Korean park, which uses North Korean labor and South Korean technology, a foreign company needs to have a South Korean subsidiary.

Yuhan-Kimberly, a joint venture between U.S.-based Kimberly-Clark and Korea-based Yuhan, has expressed a desire to set up a manufacturing base in Kaesong, but has not yet applied for space.

However, Cho Dong-ho, a professor at Ewha Womans University, said during a seminar in Seoul yesterday sponsored by the Korea Rural Economic Institute, that the government needs a more practical approach to stimulate reform and the opening of North Korea.

As an example of the failure, he said there are neither goods nor people to transport on the reconnected railroad between Seoul and Sinuiju.

He also said only 9.2 percent of the companies that tried to manufacture goods in Kaesong had done so for more than five years, as of January 2007. Many companies, he said, halted their operations after one or two years.

“The purpose of the economic policy toward North Korea is to support North Korea’s economic development and encourage reform and the opening of the North, but despite the fact that the cooperation is an economic issue, non-economic considerations were made a priority.”

Korea Times
Ryu Jin
8/28/2007

A Chinese company is going to be the first foreign enterprise to do business in the inter-Korean industrial park in the North Korean border city of Gaeseong, according to the Korea Land Corporation (KLC) Tuesday.

KLC officials said that Dashing Diva, the South Korean branch of Chinese artificial nail manufacturer Tianjin Jci Cosmetic, signed a contract to purchase a 6,000-square-meter lot in the Gaeseong Industrial Complex.

It marks the first time that a foreign company has bought a site in the inter-Korean joint venture, where about 15,000 North Korean workers commute to factories owned and operated by South Koreans.

While the first-phase pilot site has so far been occupied only by South Korean firms, the KLC designated a portion of land in Gaeseong for foreign businesses to boost the industrial complex’s international image and put the lots on sale in June.

Despite the South Korean government’s efforts to lure foreign investment there, no firms had come from outside the country until recently. Multinational sanitary goods maker Kimberly-Clark has also visited the complex to discuss investment there.

Located just north of the border, the Gaeseong Industrial Complex is a flagship project signifying reconciliation between the two Koreas, which remain still technically at war after a fratricidal conflict more than half a century ago.

Despite potential risks stemming from political uncertainty, the special zone has an inescapable economic logic: cheap labor and land of the North combined with the capital and technology of the South.

Gaeseong upbeat with foreign entrants
Korea Herald
Kim Yoon-mi
8/17/2007
 
The recent submissions of applications by two Chinese companies hoping to build factories in the Gaeseong industrial park in North Korea have further brightened the outlook on the joint economic project between the two Koreas, industry sources said yesterday.

South Korean government agency, The Korea Land Corp., said both a Chinese artificial fingernail manufacturer and a plywood producer submitted documents on July 30 in hopes of securing 6,000 square meters and 29,000 square meters of land, respectively, at the Gaeseong industrial park.

The Korea Land Corp. rents land in Gaeseong to individual South Korean or foreign companies under 50-year leases. The company had initially announced in late May that there were six applications available for foreign companies for 1,750,000 square meters of land in Gaeseong. No foreign applications were received until the two Chinese companies submitted their applications in July, according to an official at Korea Land Corp., who declined to be named.

“For foreign companies to build factories in Gaeseong, they should establish entities in South Korea. So, we are waiting for the two Chinese companies to finish that procedure first,” the official said.

The contract with the two companies is expected to be completed late this month, the official said.

Experts say Chinese manufacturers may have decided to move factories to North Korea because China’s rapid economic growth is raising wages and prices.

Currently, an average North Korean employed by any one of the 26 South Korean companies operating in the Gaeseong Industrial Complex earns $60.37 per month.

There have been unconfirmed news reports that the U.S. paper-based consumer product maker Kimberly-Clark Corp. may try to invest in the North Korean city.

Kimberly-Clark CEO Thomas Falk earlier hinted that the company would be interested in investing in Gaeseong, after he visited the North Korean city in late February.

“Gaeseong industrial part has the best environment (skilled labor) and facilities for South Korean SMEs to step forward…. Kimberly-Clark will be very interested in investment (in Gaeseong),” he was quoted as saying by the local daily, Maeil Business, on March 1.

The unnamed official from The Korea Land Corp. said he could not comment on the Kimberly-Clark proposition because he is not at liberty to discuss which foreign companies are in contact with his company.

However, the official said many foreign companies have contacted the Korea Land Corp., inquiring about going into North Korea.

The entry of foreign companies into Gaeseong will clearly be a boon for Hyundai Asan, the South Korean operator of major business projects in North Korea, the company’s officials said. This good news comes in light of a second summit between the two Koreas, another upbeat announcement for the park, Hyundai Asan officials said.

Hyundai Asan is in charge of the construction of factories in Gaeseong industrial park and operates South Korea’s tour business to Mount Geumgang resort in North Korea.

The Gaeseong industrial park, near the border with South Korea, was established in 2000 following the first landmark summit between South Korea’s then-President Kim Dae-jung and North Korean leader Kim Jong-il.

Chinese want some Kaesong action
Joong Ang Daily
8/13/2007

Two small Chinese light-industry companies have applied to build factories in an industrial complex in North Korea where South Korean companies are invested, a South Korean state land developer said on Saturday.

The Korea Land Corp. said a Chinese cosmetics manufacturer and a plywood firm submitted documents on June 30 requesting 6,000 and 2,000 square meters of land respectively in the Kaesong Industrial Complex near Kaesong, a North Korean city close to the border with South Korea.

It is the first time that foreign companies have applied to build plants at the complex where 26 South Korean labor-intensive companies are currently operating with a North Korean workforce of 15,000.

By 2012, it’s anticipated the complex will have several hundred South Korean plants employing as many as 500,000 North Koreans. South Korea is responsible for water, electricity and other infrastructure at the complex which opened three years ago.

The complex is a much-vaunted achievement of the first-ever inter-Korean summit of leaders in 2000 in the North Korean capital, Pyongyang. The second-ever summit of Korean leaders is scheduled to begin on Aug 28, also in Pyongyang.

Joong Ang Daily
You Sang-won
8/27/2007

GS Caltex Corp., South Korea’s second-biggest oil refiner, plans to open a gas station near the Kaesong Industrial Complex as its first North Korea project.

To that end, the company signed a memorandum of understanding with Jiudau, a South Korean firm that has received the right to use land in Kaesong from the North Korean government, Jiudau said.

According to Jiudau, a service company specializing in events for inter-Korean cultural and sports exchanges, GS Caltex will spend 17 billion won ($18 million) to build a gas station in the 6,611 square meter (71,160 square feet) site.

Jiudau said North Korea had approved the gas station plans. After approval from South Korea’s Unification Ministry set for next month, Jiudau and GS Caltex will begin construction and open the station in the first half of next year.

Kim Kwang-soo, managing director of GS Caltex, only said, “We are considering a gas station near the Kaesong Industrial Complex as our first North Korea business project.”

Jiudau said that once the Kaesong station is running well, GS Caltex will open stations in other North Korean cities, including Pyongyang.

Hyundai Oilbank, another South Korean oil refiner, is already operating a gas station in the Kaesong Industrial Complex and selling gasoline at $1 per liter.

Joong Ang Daily
8/25/2007

Maniker Co., South Korea’s second-largest poultry processor, plans to build chicken farms in North Korea to take advantage of cheaper labor in the communist nation.

Maniker officials will be traveling to the North in the middle of next month to finalize details on building several farms near the border of the two countries, the company said in a statement yesterday. The project will help Maniker lower costs while giving North Korean workers opportunities for increased income and high-protein food, the statement said.

North Korea has shown “a positive reaction” to Maniker’s plan, which has been under discussion since 2002, it added.

During the visit, Maniker executives and North Korean officials will choose the location of the chicken farms between Sariwon, south of the North Korean capital of Pyongyang, and Samilpo, near Mount Geumgang on the east coast, the company said.

Maniker, which trails Halim Co. in the domestic poultry market, plans to initially sell the chickens in South Korea and may eventually sell them in North Korea as well.

The company reported a net loss of 3.4 billion won ($3.6 million) for the three months ended June 30, compared with a profit of 237 million won a year earlier.

Yonhap
8/24/2007

[Excerpt]

Maniker Co., a South Korean food maker, said Friday its executives will visit North Korea next month to finalize the company’s project to set up chicken farms there.

Maniker, one of the nation’s leading chicken-processing companies, has explored ways to build chicken farms in North Korea since 2002 to take advantage of the North’s cheap labor.

During the visit in mid-September, Maniker executives and North Korean officials will choose the location of the chicken farms between Sariwon, south of the North Korean capital of Pyongyang and Samilpo near Mt. Geumgang on the east coast, the company said in a statement.

North Korea has showed “positive” response to the project, Maniker said.

If the project is successful, Maniker will be the first direct investment by a South Korean company outside an inter-Korean industrial complex in the North Korean border city of Kaesong.

“At this time, we expect the North Korean business project to produce a visible result,” said a Maniker official on condition of anonymity.

Yonhap
8/22/2007

Kimberly-Clark Corp., one of the world’s biggest makers of health care and sanitary goods, is considering opening a factory in a South Korean-built industrial zone in North Korea, according to the company’s senior executive on Wednesday.

Moon Kook-hyun, chief executive officer of Yuhan-Kimberly Ltd., Kimberly-Clark’s South Korean unit in Seoul, recently told reporters that the company’s “sewing plant” in China may take part in slots of the industrial complex in the North Korean border city of Kaesong.

“First of all, I plan to sign a preliminary contract (to take part in the Kaesong industrial complex) and then will persuade our head office,” Moon said.

Moon and Thomas Falk, chairman of Kimberly-Clark, visited the Kaesong industrial park in February.

Currently, state-run Korea Land Corp. is receiving bids from foreign companies which want to set up factories in Kaesong, located just 70 kilometers north of Seoul.

“If Kimberly-Clark applies to receive land for the Kaesong industrial park, there will be no difficulty,” said an official at Korea Land.

South Korea began building the industrial park in 2003 on a trial basis with the hope of creating a model for eventual reunification of the Korean Peninsula.

Currently, 26 South Korean plants employ about 16,000 North Korean workers who produce garments, kitchenware and a number of other goods.

If the industrial zone becomes fully operational by 2012, more than 350,000 North Korean workers will work there, according to the South’s Unification Ministry.

In a free trade agreement signed last month, the U.S. government said it would recognize the Kaesong-made goods as originating in South Korea.

Moon’s remark also came as optimism has been building over progress in resolving the North’s nuclear standoff.

North Korea has shut down its key nuclear facilities at Yongbyon under a February agreement, which was also signed by South Korea, the U.S., Japan, China and Russia.

It now has to disable the Yongbyon facilities and declare all of its nuclear programs in exchange for 950,000 tons of heavy fuel oil or equivalent aid.

Joong Ang Daily
Lee Min-a
8/17/2007

Plenty of corporate leaders came along for the last inter-Korean summit, and the jockeying for which leaders will be selected this time has begun.

The Blue House said yesterday that it is looking for people who could play a substantial role in boosting North Korea’s economy.

“We don’t have any rule that says to exclude corporate leaders who went to Pyongyang last time, but we are hoping the new list will, if possible, first be filled with people who are already involved in North Korean businesses or who can play a substantial role in making investments there,” said Cheon Ho Seon, the Blue House spokesman.

About 200 people are expected to be in the entourage, up from 180 last time. The number of business leaders is expected to grow, too.

In 2000, corporate leaders going to Pyongyang included LG head Koo Bon-moo, then-SK head Son Kil-seung, late Hyundai chairman Chung Mong-hun, Samsung vice head Yun Jong-yong, then-Kohap head Chang Chi-hyeok and Rinnai Korea head Kang Sung-mo.

The Blue House is planning to invite corporate leaders to a financial seminar this week to discuss ways to help the North.