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Korea Report - November 2005

Author : Hwang & Co Date : 05-12-12 20:24 Hit : 38279

Topics.

-APEC summit held in Busan during Nov 18-19, under the heavy security and with usual demonstration.
-President Roh had private meeting with Bush, Hu, Putin, Koizumi and other head of states on the sideline of summit.
-Korea warned Japan to show more prudent attitude toward past history.
-Prof. Hwang accused on donated ova for his research.
-Kyeongju became home of nuclear waste dump site.
-Iran pressed Korean export ahead of IAEA meeting.
-Six-party talks on NK’s nuclear weapon held with no progress.
-Finance Ministry permit foreigners to open financial holding company in Korea and trade domestic bond instruments, and liberalize currency trading.
-Samsung Group struggles with controversies on its governing structure, inheritance tax and illegal political funds.
-KOGAS elected new head of the company.
-KOSPI kept rallying breaking new records.
-Shipbuilders’ performance improve in 3Q.
-Market watches the balance of supply and demand in shipbuilding.

GOVERNMENT AND SOCIETY

Leaders of the 21 Asia Pacific Economic Committee member states, including the USA, Japan, China and Russia, whose economies make up 60% of the world's GDP and about half of global trade, gathered in Busan during Nov 18-19. They issued a joint declaration, reaffirming their commitment to liberalizing trade and investment. The APEC leaders adopted an initiative to fight against the bird flu amid fears of a human pandemic for the first time. They also pledged to protect intellectual property by discouraging counterfeit goods and software piracy. APEC leaders agreed to intensify regional cooperation to deny a safe haven to officials and individuals guilty of corruption. Business leaders of the APEC member countries adopted an anti-corruption declaration during 2 days CEO summit held on the sidelines of the APEC leaders summit, saying that the greater participation in the global fight against corruption will help create a better business environment.
Busan City estimated to have spent $156 mil so far to host the APEC 2005 summit for the construction and renovation of all venues, the "High-tech Multimedia Ocean Fireworks Show". Korea showcased its technological prowess during an exhibition on the sidelines of the APEC forum, dazzling visitors with the nations latest gadgetry, such as an android with the face of Albert Einstein, who smiled or blinked when visitors passed by.
In a usual counteraction against the APEC forum, some 100,000 civic activists from in and out of the country staged sporadic demonstrations to urge the governments and publics to pay attention to the suffering of the under privileged and accused Bush driving the world to violence and war by pursuing imperialistic policies.
President Roh Moo-hyun met China’s President Hu Jintao during APEC meeting and agreed to enhance bilateral relationship, to resolve NK's nuclear problem together, to boost the trade to $200 bil level by 2012 and to cooperate for the peace and prosperity in North-East Asia region. Korea gave a market economy status (MES), a move which would give China a greater leverage among its key trading partners. President Hu made speech at the National Assembly to say his clear stance to denuclearizing the Korean Peninsula and to work with both Koreas to foster peace.
President Roh and Russian President Vladimir Putin adopted an action plan on a comprehensive partnership and agreed to pursue projects that include to link the Trans-Siberian and Trans-Korean railways, and construct pipelines for the supply of Russian oil and gasoline to the Korean Peninsula. Korea agreed to grant Russia MES for preferential tariffs and agreed to see the trade volume reach $10 bil in the next 5 years.
President Roh had a meeting with President George W Bush and adopt "A Joint Declaration on the ROK-USA Alliance and Peace on the Korean Peninsula."
President Roh met with Japan's PM despite 2 countries' recent diplomatic row over the Japanese leaders visit to a controversial war shrine, only to confirm difference in their view of the past history.

Foreign Minister called for his Japanese counterpart to show a more prudent attitude to harmoniously untangle the pending problems between Korea and Japan. Aso, who became the foreign minister early Nov, has quickly put himself at the center of historical controversy and earned notoriety from his neighbors, by saying that Japan should not pay too much attention to protests from Korea and China over Japanese PM's visit to a shrine, as they are the only 2 countries criticizing it.

The National Assembly ratified a set of rice import deals designed to give 9 rice export countries greater access to the domestic market in exchange for delaying full liberalization for 10 years. A nationwide farmers' union declared an all-out battle against the government, saying the deals would throw the unprepared domestic farming sector into severe global competition and effectively drive them out of business. The price of home-grown rice stands at around KW180,000 per 80 kg, upto 8 times higher than crops grown in USA or China.

Hwang Woo-suk, the world leading stem cell scientist, apologized and offered to resign from all his official positions including the head of the World Stem Cell Hub, after admitting that he used ova from paid donors and junior members of his research team. He said he knew nothing abut an international code of ethics agreed in 1964 that says a scientist should be cautious before obtaining ova from a person "in a dependent relationship with" him or her. For many months after Hwang's 2004 publication, rumors had spread in scientific circles that the eggs Hwang used to achieve the landmark result had been taken from junior scientist in his lab. Embryo cloning requires human eggs, which are typically donated by women in process that requires a month-long series of hormone injections followed by a minor but not risk-free surgical procedure.
A leading University of Pittsburg researcher on embryonic stem cells, Gerald P Schatten has disengaged himself from a recently launched collaboration with Korean scientists because he is convinced that the Korean researcher had engaged in ethical breaches and lied to him about them. But he stated, "While ethical issues about ova donation should be debated and the process regulated, the scientific conclusions of Dr Hwang's research remain intact."
“SCIENCE” magazine is to take appropriate measures against allegations about Hwang's ethical lapses. It has published articles on Hwang's research twice, featuring the first successful production of a human embryonic stem cell from cloned human cells in Feb last year and Hwang's successful production of Snuppy, the cloned dog, in Aug this year.
Koreans' support for prof Hwang is sweeping the nation. More than 700 women, as of end Nov, have volunteered to contribute their eggs, since a private foundation was launched to facilitate legal and ethical donations of ova for research purposes. More than 70% of people said that the paying for egg donors is not unethical because a greater good can be achieved by his research, such as discovering cures for intractable diseases, while Citizens' Coalitions have criticized the government for blindly supporting the scientist without giving due regard to ethical considerations. Both the ruling and main opposition parties vowed to continue supporting Hwang, saying the controversy should not detract from his groundbreaking achievements. The economic value of Hwang's stem cell research is estimated to reach up to KW33 tril by 2015 in the global market for medical treatments via stem cell research.
When the Institutional Review Board, a Seoul National University ethics panel, declared that 2 researchers voluntarily donated their ova for stem-cell research purposes, Prof Hwang and his team may be cleared from the scandal over unethical research practices, but whether Hwang, who kept the donations a secret, will be able to restore his reputation and keep the credibility of his epoch-making research achievement remains to be seen.

The Constitutional Court approved President Roh's plan to relocate most government ministries out of Seoul to promote a balanced development of the nation. Under the plan, 12 of 18 government ministries, along with 37 state administrations and agencies, will move to the Yeongi-Gongju area in South Chungcheong Province, some 160 kilometers south of Seoul, beginning in 2012. The decision came one year after the same Constitution Court rebuffed the proposal, on the grounds that it breaches the "customary constitution," that Seoul has been the nation's capital for more than 600 years. Some lawmakers and local government officials from Seoul area vowed to continue their campaign against the plan. They estimated KW44 tril required for the envisioned multifunctional city. Ground will be broken in 2007 and the relocation of the organizations will begin in 2012, and the city is to be completed by 2030.

Government officially anounced Gyeongju as the home of the country's first nuclear waste dump site. The city had voters turnout of 70.8%, the highest approval rate to house the project among 4 competing cities through a plebiscite.
Foreigners own 165.84 mil square meters of land in SKorea as of Sept, 0.165% of the nations total land mass. This is worth KW24.7 tril in total, up 2.3% from the second quarter.

Iranian government ordered not to carry the advertisement for Korean goods in local news papers, in addition to its embargo for Korean export in Oct, likely as a pressure to Korea ahead of IAEA meeting on Iranian nuclear program.
Korea and Peru agreed to enhance bilateral trade, investment and cooperation in information technology and bioengineering. Korea's investment in Peru reached $640 mil as of end July.
Lux Research ranks Korea fourth in the world in terms of NANO tchnology activities and development strength, following USA, Japan and Germany.
The government announced to invest a total of KW660 bil in the Daedeok area during 4 years from 2006 to reshape the town as a global innovation cluster. It expects this investment to generate KW12 tril in revenue by 2010, attracting 852 additional venture companies and 6 more foreign research institutes, on top of current 648 companies and 2 foreign research institutes in the area.

Korean drug companies have applied to jointly produce the bird flu medicine Tamiflu with Swiss phamaceutical company to fill shortages during the pandemic. A China's woman farmer had died of bird flu, its second confirmed fatality from the H5N1 virus,which had already killed at least 67 people in Asia since 2003. EU held 2 days exercise to test their readiness to respond to a human flu pandemic. China and Vietnam, which were hit hard by bird flu, announced extreme measures to fight the disease, with China to vaccinate its entire poultry stock of 14 bil birds and Vietnam to purge its 2 largest cities of poultry.

Song Yoo-geun, born in late Nov 1997, becomes the youngest university student in Korea, being a freshman at the Physics Department of Inha University, setting another record by completing elementry, junior-high and high school curricula in just 9 months, a progress that normally takes Koreans 12 years, before being admited to university.
Korean's average life span is forecast to be 78.2 years from 2005 to 2010, compared to 69.8 years in the 1985-1990 period.

NORTH KOREA AND NATIONAL DEFENSE

Delegates to six-party talks, involving South and North Korea, USA, China, Japan and Russia, aimed at ending NK's nuclear weapons program gathered in Bejing for another round of negotiations for 3 days. NK proposed a five-stage plan for the gradual elimination of its nuclear weapons drive, under which NK would first halt plans for any nuclear tests and agree not to transfer any nuclear technology or materials to other nations. Despite the proposal, NK has stuck by its insistence that it won't make any move until USA first offers concessions to the North for giving up its nuclear weapons. US President George W Bush called Japan as an intimate friend standing against tyrant, apparently pointing Kim Jung-il of NK, in 2 days ahead of 6 way talks. No progress has been achieved.
A senior Iranian official was reported to encourage NK to pursue its nuclear program with an offer of free oil and natural gas, presiding over a group called the Iranian-NK Friendship Society during a visit to NK in mid-October.

The US Senate passed a bill to sell US war reserve stockpile in SKorea at market value. The bill allows in 3 years the sales of munitions, tanks, trucks, artillery, mortars and general purpose bombs that are currently stocked in SKorea as the War Reserves Stockpile for Allies.
The Defense Ministry plans to bring home 1,000 soldiers from Iraq next year. Korea has maintained a 3,260-strong force, mostly engineers and doctors, in the northern Iraqi town of Irbil since Aug last year to help rehabilitation and relief effort in the Gulf state.

EU-proposed resolution on condemning human rights abuse in NK, adopted with 84 votes in favor and 22 against by the UN General Assembly for the first time. SKorea abstained from voting along with 61 other countries.
More than 180 officials of Hyundai Group and more than 700 SKorean tourists visited Mt Geumgang in NK for 3 days to mark the seventh anniversary of the tourism business involving the mountain. Hyundai Asan President Yoon Man-jun was refused to enter NK, in connection with the dismissal of Kim Yoon-kyu, his predecessor.

ECONOMY AND POLICY

The Korean Development Institute forecasted 5% GDP growth next year that topped most private institutions’ expectation, along with the improving consumer spending and a nascent recovery of economy. The Korea Institute of Finance estimated the Korean economy to expand 3.9% this year.

Export rose to a record $26.1 bil in Nov, up 13% on year, thanks to robust shipments of semiconductors and flat screens, despite worries on the weakened JYen against KWon. Korea's trade volume for the first time surpassed $500 bil this year, about a 1,000-fold increase since 1963 when Korea officially marked itself as an international trading nation, and totaled $545 bil during Jan-Nov 28, with exports of $285 bil and imports $260 bil. Korea ranked 12th in the global vlume of trade. Korea's service industry trade deficit amounted to $10.6 bil in the Jan-Sept period, topping the $10 bil mark for the first time. Korea ranked first among major world economies in terms of the contribution of the information technology sector to total manufactured exports, contributing 28% of the nations product exports, the highest among the member nations and well exceeding the OECD’s average of 13%.
The consumer confidence rose in Nov with the index of 98.9 rising from 97.5 in Oct, in response to a drop in gasoline prices and a pickup in the job market.

Finance Ministry is to permit foreign financial companies to establish financial holding companies in Korea, encouraging the local financial industry to become a larger part of the regional and global financial sector. Finance Ministry is set to liberalize foreign currency trading further in Jan, allowing non-resident foreigners to borrow a big chunk of the KWon from local banks without the authorities permission. Korea, on the other hand, will strengthen monitoring and supervision of foreign exchange trading in a bid to curb illegal and speculative transactions as regulations are eased. Korea plans to allow foreign investors to trade domestic bond instruments on the over-the-counter market, as a part of moves aimed at developing Asia's second largest debt-market.

The combined net profit of domestic banks nearly doubled during the first 9 months of this year, hitting a new record. The combined net profit of the 19 Korean banks reached KW10.5 tril, up 85.3% on year, attributing the surge to a drop in provisions set aside by the banks to cover bad debts and one time capital gains from stock holdings, rather than by gains in their business operations.

The exchange rate of KWon against 100 JYen broke the barrier of 870 to 868.90 on Nov 15th, the first time since 1998, as KWon kept strengthened against USDollar while JYen weakened. Finance ministry warned to intervene the market when deems neccessary.
CYuan kept strengthened breaking CY8 against USD, reaching once 7.9997 and ending at 8.0825 on Nov 25. China recorded trade surplus of $12.01 bil in Oct, the biggest monthly gain, while USA posted the biggest monthly trade deficit of $66.1 bil. The US Federal Open Market Committee voted unanimously to raise the benchmark funds rate charged overnight loans between banks by 0.25% to 4%, for the 12th straight time, taking them to the highest level in more than 4 years and indicating more hikes to come to keep inflation at bay.

CHAEBOL

Government set up the target to improve global standing of Korea's industries until 2015, uphold auto industry to 4th in the world, air transportation 8th and maintain shipbuilding the first, under the slogan of Made-in-Korea premium.
The ruling Uri Party made its decision for applying “the financial industry restructuring bill” to conglomerates, especially to Samsung Group, leaning toward to take a softer stance to allow the group's life insurance unit to keep its 7.25% stake in SEC. Samsung Group and other chaebols will be exempted from a new bill forbidding them from using their financial units to maintain control over their subsidiaries, as the stake was purchased long before the restructuring law was introduced, but limiting the voting rights of the stocks that Samsung Card holds in Samsung Everland in excess of the legal limit of 5%. The card company owns 25.64% of Samsung Everland, unlisted company which is the de facto holding company of the group. Samsung is accused of abusing its shares in Samsung Life and Samsung Card to reign over the group.

Samsung Group announced its investment plan on R&D, totaling KW47 tril, the biggest ever in Korean history, aiming to achieve 50 world best brands, the sale of KW270 tril, profit of KW30 tril and brand value of $70 bil. Its present brand value is estimated $14.9 bil, the 20th highest in the world, compared with world No 1 Coca Cola's $67.5 bil.
Samsung Electronics (SEC) has signed a contract with Brazil’s Abril to supply wireless broadband Internet equipment, working with Abril's cable TV subsidiary to commercially launch the wirelss broadband service during the second-half of next year. SEC defended its position as the second-best seller of mobile phones in North America, such as USA, Canada and Mexico in the third quarter, with the market share in mobile phones of 17.7%, selling 6.7 mil units. SEC is recognized No 1 brand of refrigerator sold in USA.
Samsung, at the heart of all the controversies, is involved in personal woes, when the chairman's youngest daughter committed suicide in New York, as the latest in a series of misfortunes the group faced this year. Samsung is still under suspicion on providing illegal campaign funds to presidential candidates in 1997.

SEC and Hynix made a contract with 4 companies including Apple, Toshiba and Intel-Micron to supply large volume of NAND flash memory for 5 years, receiving initial instalment of $500 mil and $250 mil. Total contract amount till 2010 estimated $2.5 bil and $1.25 bil, respectively.
Microsoft agreed to pay $30 mil to Korea's Daum Communications in return for dropping antitrust charges. In Sept 2001, Daum filed a complaint with Fair Trade Commission, accusing Microsoft of abusing its market dominance to bundle its instant messaging software with its Window operating system.
NHN Corp, the nation's most profitable internet company, often compared to Google of USA, posted its net profit of KW35.1 bil jumped 289.1% on year in the third quarer due to its sale of stake in gaming company and brisk online searching business. Sales jumped 58.6% on the year to KW92.7 bil, with operating profits rising 86.1% to KW32.9 bil.

Hyundai Motor (HMC) aims to sell 210,000 new Santa Fe sport utility vehicles next year, 150,000 units of which will be sold abroad. It has invested KW162.3 bil over 26 months to develop the larger and more powerful Santa Fe, hoping to foster it as a global brand. With over 1.1 mil units sold worldwide, the Santa Fe has been the best selling SUV in Korea since 2001.
Glovis, a logistics subsidiary under HMC Group, is expected to be listed in the local bourse within this year. Glovis aims to sell a 20% stake, with the expectation of around KW20,000 per share. HMC Group Chairman Chung Mong-koo and his son own 35.15% and 39.85% each of Glovis. Norwegian Wilh Wilhelmsen bought a 25% stake in 2004 for $100 mil.

Overseas construction orders won by Korean builders jumped 72% on year to $8.56 bil, in the first 10 months of this year, due largely to a construction boom in the Middle East.
Hyundai Engineering & Construction has received a $38.5 mil order to build 132/11kV electricity transformers in Kuwait on turn key basis. It plans to break ground for the project in Kuwait in Dec and complete construction within 2 years. HEC has already got $2.35 bil worth orders sofar this year, expecting more than $2.6 bil by the end of this year.

KOGAS share holders elected Lee Soo-ho, Vice chairman of LG Corp, as its new CEO president.
Lotte Chilsung Beverage has acquired a Chinese beverage maker for $23 mil as part of its expansion plan into the worlds fastest growing market.

MONETARY AND ECONOMIC INDICES

Korea Composite Stock Price Index has kept its rally through the month, starting the month at 1188, lightly passed 1200 point, continously breaking the record and ended the month at 1299, the highest in history, expecting 1300 as comfortable target in Dec.
KWon has been stable in the range of 1142-1133 against USD through the month. Korea's foreign reserves expanded to $208.23 bil at the end of Nov, up $980 mil from the end of Oct.
Korea's umemployment rate fell slightly at 3.5% in Oct, compared with 3.6% in Sept, on the back of recent favorable economic indicators.
The yield for 3 year's corporate bond has been fluctuating in the box of 5.31-5.63%, in connection with the move of BOK's rate and FRB's. Korea's consumer prices climbed by 2.4% on year in Oct, slowing on a second straight month. Consumer prices fell 0.7% on month, the biggest decline in 19 years. Korea's import prices in Oct fell for the first time in 5 months by 0.2% from 118.57 in Sept, on falling oil prices and a rise in inventories.

SHIPBUILDING AND SHIPPING

Market is still watching the balance between the supply and demand. Some owners have ordered for remaining slots in 2008 in Korean yards, focusing on MR, aframax and VLCC. Owners warned that accelerating increase of shipbuilding capaity, by opening of new yards as well as improvement of productivity in existing yards, is a huge threat to the profitablility of ship builders as well as ship owners in future. New building prices are under pressure, but no distinctive indication of drop or rise in prices is so far shown.
The major Korean yards improved their performance in third quarter. HHI turned into a net profit of KW40 bil, a massive improvement from the KW33 bil loss last year, operating profit of KW59 bil against a loss of KW90 bil last year, on the revenue KW2.6 tril against KW2.3 tril. DSME has also come back into the black, posting net profits of KW19 bil, down 54% on year but reversed the KW12 bil loss in 2Q, and operating profit KW24 bil, coming back to black from a year long loss streak, on the sale of KW1.5 tril, down from KW1.14 tril last year. SHI also recorded net profit of KW31.2 bil from the loss last year and operating gain of KW15.4 bil from the loss of KW27.8 bil, on the sales of KW1.351 tril, up 16.6% on year. They expect further improvement of performance in 2006, when they will finish with the orders won in 2003 in very low prices. Korean shipbuilders’ demand for steel plates is expected to keep rising to 5.4 mil tons in 2006, from 5.1 mil tons this year, predicting to amount to 6 mil tons by 2008.

HHI received an order from Cuba to supply $1.3 bil worth diesel generating plants, following the order for $3.3 bil power generating plant in Sept. The capacity of 2 contract is equivalent to a third of total power generating ability in Cuba. HMD got the order from Geden Line for 4 x 37K, and 3 x 42K PC.
DSME contracted with Exmar for 1 x 150,900 cbm LNGRV, a fifth LNGRV for the owner and SCI 2 x 320K VLCC.
SHI won a $422.5 mil deal to build 3 x arctic going 70K shuttle tankers for Sovcomflot, aiming to attain predominance in the transportation system in arctic seas. SHI also received order from Hanjin Shipping for 4 x 4,275-teu box ship.
STX contracted with Ionia Management for 1 x 51K tanker and STX Pan Ocean for 2+2 x 6300 car truck carrier. STX Busan secured 2+1+1 x 9K ethylene carrier from Benelux Overseas.
ShinA got the order from Morfini for 2 x 40K PC, and Samho from Samho Shipping 3 x 17K, 2 x 12.8K, 1 x 13K chemical carriers.

Most Korean shipping companies are expected to pay taxes based on the tonnage of their ships operated, instead paying income taxes this year, expecting higher profit which will be subject of tax under the income tax system. Government recently allowed local shippers to choose between the tradtional income tax and a newly introduced tonnage tax.
Hanjin Shipping plans to invest at least KW1 tril within next year to substantially expand its fleet by ordering 5 x 9500 teu container ship for the delivery of 2009, following its recent order of 4 x 4300 teu to SHI, expecting the recovery of shipping industry from 2008. The company puts 8000 teu class container vessel, namely Hanjin Yantian and Hanjin Dallas, chartered in from Conti Rederei, into the route of America-Asia from Dec. Hanjin reported deteriorated performance in third quarter, posting sale of KW1.5 tril down 5.7% on year, operating gain KW 145.4 bil down 42.9% and net profit KW176.3 bil up 2.3%.
HMM took the delivery of Universal Queen, 310K VLCC from HHI, first new VLCC to be operated by them in 7 years. Its debt-equity ratio has improved to 268.71% in Sept from 290.3% in second quarter. HMM suffers from a drop in profit in third quarter. Net earnings fell to KW46 bil, from KW132 bil the year before, the first reverse in 9 months. Turnover dropped 8% on year to KW1.2 tril, operating profit decreased to KW121 bil, down 34%.
STX Pan Ocean acquired a 21% stake in Korea Express, Korea’s biggest on land logistics, becoming its single-biggest shareholder, and may acquire more shares, before the company graduate from court receivership in next summer. STX Pan Ocean promoted Lee-Chong-chul, VP, as CEO president.
Korea Line posted net profit of KW76.27 bil in third quarter, against KW135.88 bil last year, on the revenues at KW843.64 bil. KLC order 1 x 180K capesize bulker to Universal yard in Japan.
SK Shipping reported its performance in third quarter, with sale of KW388.6 bil up 4.3% on year, operating profit of KW30.2 bil up 167%, net profit KW19.6 bil up 337.5%.