Cautious push to inter-Korean economic cooperation

Posted on : 2007-10-08 11:34 KST Modified on : 2019-10-19 20:29 KST
Optimism exists, but N. Korean infrastructure and investment environment raise concerns among business leaders

After returning home from three days in North Korea with President Roh Moo-hyun for the second inter-Korean summit, Hyundai Motor Group Chairman Chung Mong-koo issued a press release in which he expressed his after-thoughts. “It was my first visit to the North in nine years and personally I think it was a cherished opportunity to take a first-hand look at various aspects of the country.” Considering the significance of the summit talks held in Pyongyang, North Korea’s capital, last week, the statement was extremely simple and brief. Hyundai Motor Group officials said that there were no comments from Chung regarding the conglomerate’s future business plans in the North.

With the summit talks having ended with a set of promises on inter-Korean economic cooperation and peace on the peninsula, optimism that the number of South Korean companies advancing to the North will increase has grown. However, major local conglomerates seem to be cautious about possible business opportunities in the communist country despite the North’s demand for big-time investment. In particular, Samsung, Hyundai Motor, SK and LG Group, the four major South Korean business giants, remain markedly reserved in expressing their wishes to invest in North Korea.

On the same day that Chung made his brief comments, Yun Jong-yong, head of Samsung Electronics, who was also part of the entourage accompanying President Roh to the North, issued a statement in which he said, “We will consider investment opportunities when the North provides the systems and regulations needed for safe investment, along with an improved infrastructure.” It was Yun’s second visit to the North after having participated in the delegation for the first inter-Korean summit seven years ago.

A Samsung official said, “The North surely has investment potential... but the question is its investment environment and timing.”

The leaders of other business giants have had similar responses. When asked whether they were considering investment in the North, both Chey Tae-won, chairman of SK Group, and Koo Bon-moo, chairman of LG Group, said that they would “review” the idea.

Experts attribute such lukewarm responses from the local business community to uncertainty about business conditions in the North. But they point out that their stance is too reserved, considering that such risks do not just affect big companies. Some say risk-averse attitudes among local companies, which were strengthened after the financial crisis in the late 1990s, might play a role in causing them to be cautious in expressing their North Korean investment plans.

Many observers see investments in the North by these large conglomerates as more than simple business moves. That is because their decisions on advancing into the North will lead to follow-up spending on large-scale facilities in capital-intensive areas of the impoverished country.

Kim Seok-jin, a researcher at the Korea Institute for Industrial Economics & Trade, said, “The North has been regarded as a good place for labor-intensive businesses due to its cheap labor forces, but the big companies, which have mostly capital- and tech-focused business portfolios, seem to have determined that there is little profit to be made there, taking a cautious stance.”

The business community expects that such large-sized companies might make a move if the North improves its business environment, including the freer passage of people between the two countries, unrestricted communications and customs clearance. Lee Seung-cheol, an executive of the Korea Federation of Industries, a business lobbying group, said, “The improvements in the three areas should come first before large companies make decisions on investments in the North. Weak infrastructure such as railways, sea ports and other transportation networks could impose a roadblock (to investments). In addition, sanctions on the movement of strategic items in and out of the North and the designation of the country on the U.S. list of state sponsors of terrorism will be other obstacles to get over.”

Experts say that the four major business groups are expected to pay close attention to how the two Koreas will push for inter-Korean economic cooperation projects down the road, before making investment decisions. Politics will likely remain a determining factor as premiers and defense ministers of the two Koreas meet in November as promised in the historic deal reached in the three-day summit talks held last week.

Dong Yong-seung, a researcher at the privately-run Samsung Economic Research Institute, said, “Economic cooperation on a private level will likely gain momentum as a whole but it will take some time before it (momentum) will translate into investment deals by large-sized conglomerates.”

Kim Seok-jin, another SERI researcher, echoed Dong’s opinion, saying, “Even when China pushed for market-opening and reforms, it took around 10 years for Korea’s big companies to advance to the mainland.”

Please direct questions or comments to [englishhani@hani.co.kr]

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