North Korean Economy Watch

Asia Times
Ting-I Tsai
10/6/2007

Business in Changbai county of Jilin province in northeast China is booming. The area, which faces North Korea’s Hyesan City across the Yalu River, has seen its exports rise 28.5% year-on-year in the first eight months of this year, the beneficiary of logjams created by China’s brisk trade with North Korea further downstream to Dandong – the busiest border city in northeast China bordering North Korea’s Shinuiju across the Yalu River.

As ice is melting between North Korea and the United States, more and more Chinese businessmen have been rushing to the border with the secretive communist country, looking to cash in on its trade and investment potential.

“Traffic across the river has been so busy,” said Han Lihsin, who founded a China-Korea trade website to promote business with China’s reclusive neighbor in April last year. “It is not only trucks from China that have to line up to go through customs, North Koreans have also sent their own trucks to pick up goods.”

According to statistics from Chinese Customs, bilateral trade between North Korea and China reached US$1.7 billion in 2006, a 7.58% increase over the previous year. It has grown another 16.7% in the first eight months of this year to $1.25 billion. Chinese investment in North Korea, meanwhile, had reached $38 million by the end of 2006.

China’s main exports include agricultural products, consumer electronics, textiles and fuel, but North Korean traders are taking advantage of the Internet to diversify their purchases. On China’s business promotion websites, buyers claiming to be from North Korea are asking for items as varied as wine coolers, necklaces, leather suitcases, soybean oil, pencil cases and “plastic containers for aromas or perfume”.

Whether North Koreans now have more money and are able to consume more remains a hotly debated issue among Chinese traders. But they agree that North Korean customers are now more sensitive to product quality and brands. “It’s not just about being cheap anymore. Products are required to be affordable with guaranteed quality,” said Tang Fuyou, manager of Dandong-based Tigereye62.com.

To overcome North Korean customers’ resistance to Chinese products, Tang says suppliers now market products with brand names and descriptions printed in English on the packaging. Small “Made in China” markings are placed in unobtrusive spots. “That way, goods can be sold for good prices,” he said, adding that South Korean and Japanese products are still too expensive for North Koreans.

Used televisions, washing machines, refrigerators and air conditioners are at the top of North Korean shopping lists. Hoping to ride the wave of this new demand for big-ticket household goods, China’s leading home appliance exporter Haier has reportedly been operating across the border since January of this year.

Traders aren’t the only ones looking to profit from North Korea. Burdened by soaring labor costs and high land prices, Chinese businessmen are finding this virgin territory to be a potential paradise.

Xu You, chairman of the Changbai-based China-North Korea investment association, suggested that his joint-venture wood factory pays 10 yuan (US$1.3) per month to its North Korean workers. Trader Wang Wei, whose Hsienhe pharmaceutical manufacturing company is planning to build a new factory in North Korea’s Nanpo, suggested that monthly salaries there average about 50 yuan.

Ambitious North Korean officials might not appreciate the intricacies of capitalist operations, but they have skillfully extended their networks for soliciting investment by touting the country’s advantages of cheap land and labor. North Korean websites based in China are advertising a broad range of investment opportunities, including in the areas of energy, restaurants and hotels, agriculture, mining, manufacturing and general infrastructure.

Among the approximately 100 projects circulating on these websites, hotels and electricity generation seem to be particular targets. One calls for a $30-45 million investment in Pyongyang’s yet finished tallest building, the Ryugyong Hotel, while another requires a $50-60 million investment for the Taedong-gang Hotel. Stakes in expansions of fuel-fired power plants are being offered for $100-200 million, and, hoping to take advantage of green energy, projects to develop wind and solar power also appear but minus a price tag.

As for manufacturing, projects to make elevators, freezers, electronic watches, shoes, sewing machines and even disposable diapers all require foreign investments in the form of machines, technology and raw materials.

At the urging of North Korean officials, investors Xu and Wang are now involved in pitching investments south of the Yalu to other Chinese prospects. According to Wang, Pearl River delta-based Chinese businessmen have expressed the most interest in relocating their factories, with 30 to 50 investment projects currently under negotiation.

Among those still concerned about the high uncertainty of operating in North Korea, some have chosen to set up an office in Pyongyang and bide their time until a timely opportunity emerges.

Aware of the growing significance of the bilateral commercial relationship, China’s central government and three provinces near the North Korean border – Liaoning, Jilin and Heilongjiang – have all made efforts to boost bilateral cooperation.

In March 2005, Chinese Premier Wen Jiabao signed an investment-protection agreement with his North Korean counterpart, and the two nations inked five bilateral economic cooperation agreements between 2002 and 2005. During North Korean leader Kim Jong-il’s visit to China in January 2006, Wen introduced new economic-cooperation guidelines.

In July of this year, Chinese Foreign Minister Yang Jiechi noted during his three-day visit to Pyongyang that economic cooperation was an important part of China’s relations with the North, and said China would continue to promote cooperation by following the previous agreements and guidelines.

Provincial governments, meanwhile, have been promoting cross-border trade by attending and holding trade shows and building new trade zones. Jilin’s Hunchun, Jian and Tumen are the cities along the North Korean border most aggressively pursuing free-trade zones that would allow visa-free access and offer duty-free facilities.

North Korea introduced economic reforms in 2002, but with embargoes imposed by the United States and Japan and Pyongyang’s economic conservatism, the reforms have accomplished little and the economy continues to struggle. In an acknowledgement of those problems, Dear Leader Kim Jong-il in January of reportedly vowed to make 2007 North Korea’s economic development year.

Tang, the Chinese businessman operating in Dandong, noted that his company is about to be appointed by North Korea’s trade authority to assist the operations of some 200 North Korean companies in China. He believes, however, that patience is required when dealing with the communist, reclusive nation.

“Even when North Korea and the US normalize their relationship, more time will be needed for economic reform,” he said, “Chaos would follow if the system is transformed too quickly.”

Korea Times
Jane Han
10/3/2007

A Stalinist regime, erratic regulations and language barriers may be topping a long list of reasons why business should not be done in Pyongyang, but a longtime advisor to companies operating in North Korea dismissed those concerns, as he welcomed the ongoing inter-Korean summit as a positive sign for investors all over the world.

“The summit offers encouragement to investors everywhere because it’s reassuring to see that the two Koreas are talking to each other with a long term vision in mind,” Roger Barrett, the British founder of Beijing-based Korea Business Consultants, said in a Korea Times interview Wednesday. “The summit and sustainability go together.”

Although the ongoing summit that began Tuesday will make a positive impact toward Pyongyang investment, Barrett _ currently working with about 15 to 20 companies actively in business in the North _ said the economic outcome is being underestimated and the Western media failed to link the summit with a business boost and investor confidence.

“Imagine President Bush took the heads of GE and Microsoft to Iraq _ that would show strong signs,” he said, implying that President Roh’s special entourage of 18 local CEOs wasn’t given adequate attention.

The managing director of the non-political, non-partisan business consultancy servicing clients mainly from Europe, Southeast Asia, South America and South Africa said the summit and the recent six-party talks can robustly trigger investment in North Korea’s wide-ranging businesses.

“The country needs demystification because there are so many misconceptions,” he said, explaining that perceptions and sanctions are the biggest problems companies must overcome at first.

Barrett admitted that North Korea’s nuclear test last October brought financial sanctions that scared many companies away and the number of inquiries generally dropped, but said a lot of the situations can be worked around _ as it goes in any other country.

“It’s easier than people think to do legitimate business in North Korea. It’s not as tough as China,” he said, referring to the fact that many investors worldwide still jump into China’s economy. “When it comes to North Korea, people continue to speculate and guess.”

Barrett, who frequently travels to Pyongyang with investors, said the central government’s support is strong.

“Is there any country in the world that doesn’t want foreign investment?” he said, emphasizing that the obvious answer goes the same for North Korea. “Many people think that the government regulations keep changing because it does change _ it’s constantly improving.”

Better communication, expanded infrastructure and stable energy and power supplies are some of the factors that need improvement, said Barrett, who has specialized in foreign investors entering the Pyongyang market for the past decade.

Among the some 200 foreign-invested companies operating in the Stalinist state, he said mining, mineral, metals and manufacturing are the most popular business sectors.

“A majority of the investors who start a business end up staying, as they enjoy the benefits of being one of the first starters in Pyongyang,” Barrett said, adding that cost-effective labor and natural resources are two of the biggest plusses.

“Come spring and autumn, flights going out from Beijing to North Korea are full,” he said. “The country and business environment are definitely more normal than people think,”

Joong Ang Daily
Ser Myo-ja and Kim Han-byul
10/5/2007

Thank you for flying, we’ll be landing in North Korea soon.

That announcement could be heard on a regular basis as the inter-Korean summit agreement laid out the groundwork for the first regular air route between North and South Korea.

Passengers will be allowed to fly from Seoul to an airport on Mount Paektu, on the North Korea-China border, according to the deal.

President Roh Moo-hyun and North Korean leader Kim Jong-il said the new air route is intended to boost inter-Korean tourism to the mountain. In 2005, Kim promised such a program to Hyundai Asan Chairwoman Hyun Jeong-eun during her visit. With cooperation from the Korea National Tourism Organization, Hyundai Group’s North Korea business arm began preparing for it, although nothing substantial now exists.

Standing 2,744 meters (9,002 feet), Mount Paektu has been worshiped by Koreans throughout history as the place of their ancestral origin, according to the foundation legend.

“The air route will be the starting point for new aviation cooperation between the two Koreas,” said Ahn Byung-min, a North Korea expert at the Korea Transport Institute. “The runway of Samjiyon Airport in the mountain has been repaired a bit, but other facilities, including the terminal, need more work.”

Since Kim’s promise to Hyun, the South has provided material to repair the military airport, located 1,300 meters above sea level.

Hyundai Asan welcomed the agreement yesterday, saying it has already researched various tour packages and promotional strategies. The company said it will consult with the government to expedite the beginning of the tour.

Tourism industry sources said tourists take no trips in the winter. So if everything somehow came together and the airport was fully upgraded, the earliest the trip could be offered is next spring.

Yun Chi-sul, owner of the travel agency Mount Paektu.com, said, “May is still wintertime on Mount Paektu. Some trips have been canceled even in early June.” He has sold tour packages to the North Korean mountain since 1998 by using routes from China.

South Korea’s two major airlines, Korean Air and Asiana, also welcomed the news, expecting increased demand. About 100,000 South Koreans visit the mountain via China each year by using air and car routes to the mountain. Direct air travel is expected to cut the travel time to about an hour.

The Ministry of Construction and Transportation said more detailed agreements need to be worked out between the two Koreas for the flights to actually be operated. Whether the North will allow a plane to fly above its inland areas or force it to detour above the Yellow Sea is still unclear.

Roh and Kim also agreed yesterday to send inter-Korean cheer teams to the 2008 Beijing Olympics via the Gyeongui Line, which links Seoul and Shinuiju in the North. It will be the first non-ceremonial use of the restored inter-Korean railroad, the leaders said.

“We will have to wait and see how far the railroad can be used for the travel,” said Ahn, of the Korea Transport Institute. “The North probably will feel a burden in allowing a civilian train from Seoul to run through the entire country.” The train trip from Seoul to Beijing will be 1,614 kilometers (1,002 miles).

The 518.5-kilometer-long Gyeongui Line, completed in 1906, was severed during the Korean War. The two Koreas agreed to restore the railroad in 2000 at the ministerial talks, and the South has spent 545.4 billion won ($588.7 million) for railroad construction, including 180.9 billion won worth of material and equipment sent to the North. After several setbacks, the two Koreas tested the restored railroad on May 17 of this year.

Joong Ang Daily
10/5/2007
Moon Gwang-lip

A raft of economic deals, including easing restrictions for South Korean companies hoping to invest on the western part of North Korea, new rail lines and more effective cooperation between the two countries filled yesterday’s agreement.

President Roh Moo-hyun and his North Korean counterpart Kim Jong-il agreed to accelerate the expansion of the Kaesong Industrial Complex in the North Korean border city.

Some economists and businesspeople in the South hailed the accord as a possible initial step toward developing the entire western section of North Korea.

Lim Soo-ho, a researcher at Samsung Economic Research Institute, said the agreement will provide a driving force for the two Koreas to produce “substantial” economic exchanges.

“The agreement to upgrade the dialogue channel for economic cooperation shows the North’s willingness to push forward with wider inter-Korean economic exchanges,” Lim said.

In the joint declaration made yesterday on the final day of Roh’s three-day visit to Pyongyang, the two Koreas agreed to upgrade the Inter-Korean Economic Cooperation Promotion Committee, the discussion channel between the two nations, from a vice minister-level group to a minister-level group.

Lim said the North’s willingness to make deals “has already been shown by its agreement to improve the ‘three-tong.’ ”

Three-tong refers to the poor conditions of passage (tonghaeng in Korean), communication (tongsin) and customs clearance procedures (tonggwan), which have been singled out as the biggest hurdles for the North in attracting outside investment into the Kaesong Complex, where more than 20 South Korean firms employ about 15,000 North Korean workers.

In the agreement, the two leaders agreed to “promptly complete various institutional measures” to tackle those areas.”

Currently, entry to the Kaesong Industrial Complex is only granted several days after it is requested. Cell phones and the Internet are not available in the area due to a lack of facilities. It also takes considerable time to clear customs.

In other accords, the two Koreas agreed on development projects in west coast areas of the North, including the establishment of cooperative complexes for shipbuilding in Anbyon and Nampo.

In addition, they agreed to create a “special peace and cooperation zone in the West Sea” encompassing Haeju. Civilian ships from North and South Korea will be allowed to pass through the Northern Limit Line, the de facto sea border between the two countries.

It was also agreed that freight rail services would be opened between Munsan and Bongdong.

“The agreements may be seen as the North preparing to develop its whole west coast region as an extension of the Kaesong Complex,” Lim said. “That is a positive sign for businesses interested in investing in the North.”

Business groups in the South welcomed the agreements, calling them substantial.

“I believe the inter-Korean summit this time will relieve businesses, at home and abroad, of concerns over uncertainty regarding investment in North Korea and encourage them to extend their investment in inter-Korean economic cooperation,” Yoon Man-joon, CEO of Hyundai Asan, which has exclusive rights to South Korean tourism to the North, was quoted as saying by Yonhap.

In a visit to Kaesong Industrial Complex last night, Roh said he won’t take political advantage of the new economic opportunities.

“The Kaesong Industrial Complex is a place where the two Koreas will become one and share in a joint success, not to make the other party more reformed and accessible,” Roh said. “We will work hard to make workers more comfortable working here. I wouldn’t call it reform or openness.”

He said reform and openness is considered good in the South.

The government said it is still too early to hazard a guess about the cost of putting the new plans into action.

“We cannot figure out yet how much money is needed to implement the new agreement,” said an official of the Ministry of Budget and Planning, who refused to be identified. “But we guess a lot of money is not needed for next year, as it is just a preparation period.”

Still, the government has earmarked 1.3 trillion won ($1.4 billion) for next year’s inter-Korean economic cooperation projects.  Of that, 900 billion won has been set for use by the government, with 430 billion won available to businesses involved in implementing the new agreement.

Yonhap
10/5/2007

South Korean electronics giant Samsung Electronics Co. will consider investing in North Korea if the communist country provides better infrastructure and business-related regulations as promised in an agreement reached during the just-ended inter-Korean summit talks, the company’s top executive said Friday.

“We will review investment opportunities in the North if Pyongyang provides systems and regulations needed for safe business operation there, and guarantees improvement in the passage of civilians, customs clearance and communications as promised, along with a stable supply of electricity and water,” Yun Jong Yong, head of Samsung Electronics, said in a statement issued after returning from Pyongyang.

Yun and other business leaders accompanied President Roh Moo-hyun for the second-ever inter-Korean summit talks.

As they wrapped up the three-day summit, President Roh and his North Korean counterpart, Kim Jong-il, on Thursday agreed to a number of inter-Korean business projects, including accelerating the expansion of an industrial complex in the North’s border city of Kaesong, where more than 20 South Korean small- and medium-sized enterprises run facilities.

They also agreed upon improving related regulations for the passage of civilians, customs clearance and communications, which many businessmen have cited as challenges hindering operation in the North.

Yun said the leaders of the two Koreas had more “tangible” negotiations — especially on inter-Korean economic cooperation — than then South Korean President Kim Dae-jung had with the North Korean leader at the previous meeting held seven years ago.

Since the 1990s, Samsung Electronics has been engaged in business in the North, including software development projects, but has made little large-scale investment in the communist country.

Yonhap
10/5/2007

Leaders of the two Koreas discussed issues relating to oil field development and exploration at the latest summit in Pyongyang, South Korea’s top economic policymaker said Friday.

“The oil development issue was discussed at the summit, and North Korean leader Kim Jong-il expressed keen interest in the South’s oil field and gas exploration projects,” Finance Minister Kwon O-kyu said in a press briefing.

“South Korea also discussed the development of resources in North Korea, including oil fields.”

Kwon said the oil development issue may continue to be discussed at talks of the proposed Joint Committee for Inter-Korean Economic Cooperation, a committee to be formed through upgrading the status of the existing Inter-Korean Economic Cooperation Promotion Committee in an effort to accelerate bilateral economic cooperation.

Kwon played down concerns about potential financial burdens on the government from proposed inter-Korean business projects.

At the three-day summit, ended Thursday, the two Koreas agreed on a range of cross-border business projects, including creation of a special economic zone at the North’s western port city of Haeju, development of an existing port of Haeju, and expansion of an industrial complex in the North Korean border town of Kaesong.

The two also agreed to jointly repair and maintain the North’s dilapidated expressway linking Kaesong and Pyongyang, as well as the North’s railway between Kaesong and Sinuiju on the North’s western Chinese border.

The two countries also decided to construct an inter-Korean joint shipbuilding complex in Nampo, near Pyongyang.

South Korea will be able to finance the development of Haeju port through a proposed 2 trillion won (US$2.2 billion) overseas port development fund, which will be created by the nation’s port authority, Kwon said.

In a related note, Maritime Minister Kang Moo-hyun said in a meeting with reporters that about 220 billion won will be spent for the development of the port which will have eight berths, including two container berths.

The government will also able to attract international cooperation for repairing the railways since it is part of a wider international railway project of Trans-Siberian Railway, he said.

South Korean shipyards, which hold a combined 45 percent share of the global market, by investing in the envisioned shipbuilding complex will be able to maintain their competitiveness through access to North Korea’s cheap labor, Kwon said.

In case of the summit’s impact on domestic financial markets, Kwon declined to make concrete predictions, but said rising expectations of improving profitability and competitiveness by domestic businesses might be able to boost investor spirits.

Korea Times
Kim Yoo-chul
10/5/2007

Daewoo Shipbuilding Unveils Plan to Build $150 Mil. Shipyard in Northern Coastal City

South Korean shipbuilders and analysts questioned the economic viability of the proposed plan to build a joint shipbuilding complex in the wake of the inter-Korean summit.

The agreement between the two Koreas calls for the two sides to construct a joint shipbuilding complex in the North’s port city of Nampo, near Pyongyang.

Most officials from major South Korean shipbuilders say that too many things are uncertain as of yet though Daewoo Shipbuilding & Marine Engineering (DSME) unveiled a bold plan to build a $150 million block plant in the North’s city of Anbyeon.

“When issues of transportation, communication, customs and capital see improvement, we will build a block plant in the North Korean city with production capacity of 200,000 tons a year,’’ DSME President Nam Sang-tae told reporters Friday.

“We will start to begin the process within this year after certain issues are solved,’’ Nam said, adding the company looks to begin production from early 2009.

He said the company is seriously considering in participating in joint projects by the two Koreas in the North’s western city of Nampo.

Unlike Daewoo Shipbuilding, Hyundai Heavy Industries, the world’s No.1 shipbuilding company, showed reservations.

“The announcement itself is good. But it is not the right time to start business talks with North Korea, given a lack of credibility and geopolitical uncertainties,’’ said a high-ranking official from Hyundai Heavy Industries.

Asked about the possibility of finding another investment area for South Korean shipbuilders in North Korea, the official said it is likely but needed a few years as the building of infrastructure there will need massive funding.

The production capacity in the North’s shipbuilding industry was 258,000 tons in 2004, about 3.1 percent that of the South’s 8.24 million tons in the same year, according to a report from the Korea Development Bank. There are eight shipyards in North Korea, including Wonsan and Najin. Total employees in the industry were 25,000, the report shows.

Analysts also said the announcement is not `fresh material’ to boost share prices in shipbuilders.

“There was no immediate positive impact on stock prices, nor will there be a negative ones in the long term,’’ said Lee Jae-kyu, an analyst from Mirae Asset Securities.

He expects the scale of investments by the South Korean shipbuilder in joint projects to be small in the near future as shipbuilding-related facilities require large amounts of capital and time.

“If the joint projects materialize, the complex will be constructed in the form of a `block plant’ _ repairing vessels or producing components. Therefore there will be no huge momentum in shipbuliding stocks,’’ Ahn Ji-hyun from NH Securities said.

Korea Times
10/5/2007

More than $11 billion is needed to implement cross-border business projects that the leaders of the two Koreas agreed to at the historic summit this week, a local research institute estimated Friday.

Wrapping up a three-day summit, the second one since 2000, South Korean President Roh Moo-hyun and North Korean leader Kim Jong-il on Thursday agreed to a number of inter-Korean business projects.

According to Hyundai Research Institute, the development of a special economic zone in Haeju, the North’s western port city, will cost about $4.6 billion. Around $2.5 billion will be spent to finance the expansion of an industrial complex in the North Korean border city of Kaesong.

A project to build leisure facilities around Mount Baekdu is expected to cost $1.3 billion, the research institute said.

The estimated cost, when it is financed over five years, is equivalent to 8.75 percent of the North’s gross domestic income, and 0.25 percent of the South’s gross domestic product, Hyundai Research said.

The two leaders called for rapidly expanding the South-supported industrial park in the North’s border town of Kaesong and launching cross-border freight transportation via an inter-Korean railway between the South’s Munsan and the North’s Pongdong.

The two Koreas also agreed to jointly repair and maintain the North’s dilapidated expressway linking Kaesong and Pyongyang, as well as the North’s railway between Kaesong and Sinuiju on the North’s western Chinese border.

As part of a bilateral agreement to boost relations in tourism, history, language, education, culture, sport and art, the Koreas agreed to open a direct air route between Seoul and Mount Paekdu, allowing South Koreans to tour the scenic North Korean mountain on the North’s northern border with China.

The research institute, meanwhile, projected that the North would get $138 billion worth of economic benefits and the South $4.8 billion should the inter-Korean business projects be implemented as planned.

Institute for Far East Studies
NK Brief No. 07-10-4-2

1. The South and the North shall uphold and endeavor actively to realize the June 15 Declaration.

The South and the North have agreed to resolve the issue of unification on their own initiative and according to the spirit of “by-the-Korean-people-themselves.”

The South and the North will work out ways to commemorate the June 15 anniversary of the announcement of the South-North Joint Declaration to reflect the common will to faithfully carry it out.

2. The South and the North have agreed to firmly transform inter-Korean relations into ties of mutual respect and trust, transcending the differences in ideology and systems.

The South and the North have agreed not to interfere in the internal affairs of the other and agreed to resolve inter-Korean issues in the spirit of reconciliation, cooperation and reunification.

The South and the North have agreed to overhaul their respective legislative and institutional apparatuses in a bid to develop inter-Korean relations in a reunification-oriented direction.

The South and the North have agreed to proactively pursue dialogue and contacts in various areas, including the legislatures of the two Koreas, in order to resolve matters concerning the expansion and advancement of inter-Korean relations in a way that meets the aspirations of the entire Korean people.

3. The South and the North have agreed to closely work together to put an end to military hostilities, mitigate tensions and guarantee peace on the Korean Peninsula.

The South and the North have agreed not to antagonize each other, reduce military tension, and resolve issues in dispute through dialogue and negotiation.

The South and the North have agreed to oppose war on the Korean Peninsula and to adhere strictly to their obligation to nonaggression.

The South and the North have agreed to designate a joint fishing area in the West Sea to avoid accidental clashes. The South”s Minister of Defense and the North”s Minister of the People”s Armed Forces have also agreed to hold talks in Pyongyang this November to discuss military confidence-building measures, including military guarantees covering the plans and various cooperative projects for making this joint fishing area into a peace area.

4. The South and the North both recognize the need to end the current armistice regime and build a permanent peace regime. The South and the North have also agreed to work together to advance the matter of having the leaders of the three or four parties directly concerned to convene on the Peninsula and declare an end to the war.

With regard to the nuclear issue on the Korean Peninsula, the South and the North have agreed to work together to implement smoothly the September 19, 2005 Joint Statement and the February 13, 2007 Agreement achieved at the Six-Party Talks.

5. The South and the North have agreed to facilitate, expand, and further develop inter-Korean economic cooperation projects on a continual basis for balanced economic development and co-prosperity on the Korean Peninsula in accordance with the principles of common interests, co-prosperity and mutual aid.

The South and the North reached an agreement on promoting economic cooperation, including investments, pushing forward with the building of infrastructure and the development of natural resources. Given the special nature of inter-Korean cooperative projects, the South and the North have agreed to grant preferential conditions and benefits to those projects.

The South and the North have agreed to create a “special peace and cooperation zone in the West Sea” encompassing Haeju and vicinity in a bid to proactively push ahead with the creation of a joint fishing zone and maritime peace zone, establishment of a special economic zone, utilization of Haeju harbor, passage of civilian vessels via direct routes in Haeju and the joint use of the Han River estuary.

The South and the North have agreed to complete the first-phase construction of the Gaeseong Industrial Complex at an early date and embark on the second-stage development project. The South and the North have agreed to open freight rail services between Munsan and Bongdong and promptly complete various institutional measures, including those related to passage, communication, and customs clearance procedures.

The South and the North have agreed to discuss repairs of the Gaeseong-Sinuiju railroad and the Gaeseong-Pyongyang expressway for their joint use.

The South and the North have agreed to establish cooperative complexes for shipbuilding in Anbyeon and Nampo, while continuing cooperative projects in various areas such as agriculture, health and medical services and environmental protection.

The South and the North have agreed to upgrade the status of the existing Inter-Korean Economic Cooperation Promotion Committee to a Joint Committee for Inter-Korean Economic Cooperation to be headed by deputy prime minister-level officials.

6. The South and the North have agreed to boost exchanges and cooperation in the social areas covering history, language, education, science and technology, culture and arts, and sports to highlight the long history and excellent culture of the Korean people.

The South and the North have agreed to carry out tours to Mt. Baekdu and open nonstop flight services between Seoul and Mt. Baekdu for this purpose.

The South and the North have agreed to send a joint cheering squad from both sides to the 2008 Beijing Olympic Games. The squad will use the Gyeongui Railway Line for the first-ever joint Olympic cheering.

7. The South and the North have agreed to actively promote humanitarian cooperation projects.

The South and the North have agreed to expand reunion of separated family members and their relatives and promote exchanges of video messages.

To this end, the South and the North have agreed to station resident representatives from each side at the reunion center at Mt. Geumgang when it is completed and regularize reunions of separated family members and their relatives.

The South and the North have agreed to actively cooperate in case of emergencies, including natural disasters, according to the principles of fraternal love, humanitarianism and mutual assistance.

8. The South and the North have agreed to increase cooperation to promote the interests of the Korean people and the rights and interests of overseas Koreans on the international stage.

The South and the North have agreed to hold inter-Korean prime ministers” talks for the implementation of this Declaration and have agreed to hold the first round of meetings in November 2007 in Seoul.

The South and the North have agreed that their highest authorities will meet frequently for the advancement of relations between the two sides.

Oct. 4, 2007

Pyongyang
[Document signed by both Roh Moo-hyun and Kim Jong Il]

Korea Times
Yoon Ja-young
10/2/2007

The second inter-Korea summit is expected to lay the ground not only for the establishment of a permanent peace on the peninsula but for further re-rating of the Seoul stock market, analysts said.

They said that Seoul stocks, burdened so long with the so-called “Korea discount” due to geopolitical concerns, will get a fresh boost as President Roh Moo-hyun entered North Korea for a summit with the North’s leader Kim Jong-il.

The main index KOSPI closed above 2,000 points again Tuesday as it closed at 2,014.09 points, up 51.42 points, or 2.62 percent, on the balmy news from north on top of the bullish New York bourse.

Most analysts agree that the summit will have a positive effect on the bourse in the long term. They advise investors to pay attention to stocks that have to do with social overhead capital (SOC) projects in North Korea.

Samsung Securities said the summit will be a great boon for the bourse in the long run. “The political events between the two countries haven’t affected stock prices much. Opinions diverge regarding its effect in the short term, but it would greatly contribute to the revaluation of local stock market in the end,” said Ahn Tae-kang, an analyst at Samsung Securities.

The world was surprised when the two countries announced the summit plan in 2000 April, and the whole nation watched the historic scene on TV when former President Kim Dae-jung was greeted by North Korean leader Kim Jong-il in Pyongyang two months later.

The stock market soared after each of these events, yet change was not always predictable. When North Korea conducted nuclear tests in 2006, on the contrary, stocks continued to rise as foreign investors sought buying shares on cheap prices.

It is different this time, according to analysts. “It would be a remarkable bullish factor once the two come out with a concrete plan on economic cooperation and SOC,” said Lee Seon-yeob, an analyst at Goodmorning Shinhan Securities. It would be only symbolic if without concrete agreements, he feared, but it would still be meaningful, according to Lee.

“The two can talk about setting up special economic zones, which can give rising momentum to North Korea related stocks and improve overall investor sentiment,” Kiwoom Securities said in a report.

Samsung Securities’ Ahn cited decreasing geopolitical risk and consequent reevaluation of stocks, the economic cooperation between the two and decreasing cost of unification after North Korea’s adoption of a market system and opening of the market as meanings of the summit. “The growing possibility of the sovereign credit ratings raise and Seoul index’s incorporation into developed world indices and the risk premium decrease are some of the positive effects,” he said.

He advised investors to concentrate on large cap blue chips that will benefit from infra projects in North Korea. Hyundai Engineering & Construction, POSCO, Hyundai Merchant Marine, Hyundai Elevator, KEPCO, and Hyosung were among his top picks.

Goodmorning Shinhan’s Lee said cited SOC related businesses, including construction and power transmission as the ones to benefit from the summit. “In the first summit, all stocks related with North Korea skyrocketed, but not this time. Investors are taking out the ones that will have a visible benefit. Investors seem to know how to make a good investment,” Lee said.

North Korea-related shares rise on summit
Joong Ang Daily
Kim Bo-yung
10/2/2007

With just a day left before the second epoch-making inter-Korean summit, North Korea-related shares surged on the Korean stock market yesterday.

The power facility industry enjoyed a moderate increase. Geumhwa PCS Co. advanced 5.5 percent, and Doosan Heavy Industries & Construction Co. climbed 2.37 percent.

The electric wire sector also posted a bull run as LG Cable and Taihan Electric Wire Co. surged 5.3 percent and 2.8 percent.

Nam Hae Chemical Corporation, a local agrichemical product manufacture, increased 5.6 percent.

However, the companies that have penetrated into the Kaeseong Industrial Complex suffered a loss.

Romanson Co. tumbled 3.3 percent and JY Solutec Co. slid 0.8 percent.

The share prices of Ewha Technologies Information, Cheryong Industrial Co. and KwangMyung Electronic, potential beneficiaries of electricity transmission from South to North Korea, dropped by 6 to 13 percent.

The second inter-Korean summit is expected to improve investment sentiment, generating strong gains across the board.

However, some market watchers warn investors not to make impulsive investments in North Korea-related shares.

“Although investment sentiment surrounding the stock market is [expected] to improve once the inter-Korean summit kicks off, it will only have a short-term effect,” said Oh Hyun-seok, the investment information manager at Samsung Securities.