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  Korea Report - December 2004
  Author : Hwang & Co     Date : 05-01-11 10:42     Hit : 19199    
Topics.

-President Roh visited troops in Iraq.
-President Roh vowed to play leading role to resolve NKs nuclear standoff.
-Rice talk concluded.
-ASEAN + 3 agreed to make an economic bloc comparable to EU and NAFTA.
-Japan prepares sanction on NK, for the faked remains of the kidnapped.
-GNI growth marked below 5.0%, on the robust export and slumped consumption.
-Chaebols squeezed by Fair Trade Act.
-LG Group continued spinoff.
-HMM fined over irregular accounting.

GOVERNMENT AND POLICY

The year of 2004 passed by into the history. Korean people experienced unexpected surprises, some of which they never like even to dream. President Roh Moo-hyun was impeached, but saved by the Constitutional Court. The Court ruled against government's move to relocate the Capital. Uri Party took Assembly majority in the general election, changing map of entire politics. Special Law to extinguish the trade of sex passed the Parliament. Korean troops were dispatched to Iraq and a young Korean hostage beheaded there. US Troops partially pulled out from Korea. Economy continued to be sunken to bottomless depth. Human embryo stem cell was copied by a Korean scientist. Bullet Train started service. Korea wave in drama and stage swept Asia.

President Roh has made lightening moves during his trip abroad and internal affairs. He astonished people by his unexpected visit to Korean troops in Iraq on the way back home from the state visits to European countries. He chose Hong Seok-hyun, Chairman of JoongAng Ilbo and a brother in law of Samsung Group's Chairman, as a new ambassador to USA. Hong is not only an owner of one of the nations most prominent dailies, but is reportedly close to the members of the Bush administration. President Roh expressed his hope, during his trip to Europe, that Korea will take a leading role to establish a new order in Northeast Asia by successfully resolving NK's nuclear weapons standoff. He also said in Paris that USA should not try to exclusively possess the friends.
Asian Wall Street Journal claimed that President Roh is isolating Korea from traditional allies, because of his unique point of view.

Korea and 9 rice exporters, including USA, China, Thailand and Australia have effectively agreed; 1. to raise the tariff-rate quota to 8% of the domestic market by 2014 from 4% in 2004. 2. 30% of the rice brought in can be sold directly to consumers from 2010. 3. to grant Korea a 10-year extension of its current tariff waiver. Under the agreement, Korea is to keep its tariff waiver status on rice imports in exchange for giving rice-exporters greater access to the domestic market. Korea will sell 10% of foreign rice directly to consumers from 2005 and 30% by 2010. Thousands of farmers from all over the nation gathered in Seoul to stage big rallies protesting against the governments move to open up the rice market to foreign suppliers.

Korea and Singapore signed on the free trade agreement to end 11 months of negotiations, that is expected to go into effect in mid-2005. Korea expects a lot to gain from Singapore's advanced service and financial sectors, while Singapore can capitalize on Korea's efficient logistics system following the FTA.
Korea, China and Japan, plus 10 members of the Association of Southeast Asian Nations pledged to tear down trade barriers, scheming to create an economic block like EU and NAFTA. Korea and China discussed the way to jointly cope with the foreign exchange rates and raw material prices at their 12th working level trade meeting. Korea and Taiwan resumed a 12-year hiatus and reopened regular passenger flights.
Korea, Japan, USA and Philippine historians demanded Japanese government to stop distorting the history of WWII.

Government officially announced that Korea would have Winter shorter for a month than usual, creating a lot of confusion in fashion, home appliances, leasure industries.
Rescuers scoured waterlogged coasts across Asia after an earthquake of epic power struck below the Indian Ocean and sent huge walls of water crashing onto beaches in 8 countries, killing hundreds of thousand people and leaving millions homeless. 12 Koreans are known to have been killed and 8 missing, the whereabouts of about 200 others remained unknown.

NORTH KOREA AND NATIONAL DEFENSE

President Roh complained that USA and other hard-line countries, still hoping for NK to collapse, make it difficult for the North's nuclear weapons standoff issue to be resolved peacefully, saying NK feels uneasy and a sense of crisis if others think the NKorean regime should collapse. NK warned not to return to nuclear talks if USA keeps insisting on NK to renounce peaceful as well as military atomic activities.
USA made it clear to have no plan to attack NK or to change its regime, but to seek to end the nuclear standoff through UN Security Council, should diplomacy fail. US ambassador to SKorea said that USA is willing to hold limited face-to-face talks with NK and will continue to help feed the country, but will not sweeten a proposed trade of economic concessions for a halt in development of nuclear weapons.

The US military has completed deploying new Patriot Missiles in South Korea as part of its $11 bil upgrade of regional defense capabilities.
Korea Aerospace is to manufacture and supply to Korean Army 8 P-3B patrol aircrafts, which are used primarily to detect prowling enemy submarines.
Parliament pass the bill for the troops to extend its stay 1 more year in Iraq.

Japanese lawmakers passed a non-binding resolution urging government to consider sanctions on NK, reflecting rising anger after bones, said by NK to belong to kidnapped Japanese, were found faked. NK handed over the bones at talks in Pyongyang in Nov, as a part of the remains belonging 2 of 8 Japanese who died in NK. NK has admitted to kidnap 13 Japanese citizens in the 1970s and 1980s to help teach spies about Japan, 8 of whom were dead, but has failed to provide convincing proof of the deaths. Many Japanese suspect some of the victims still alive. NK warned Japan that it would treat economic sanctions as a declaration of war and threatened to try to exclude Tokyo from 6-party talks on Pyongyangs nuclear arms programs.

A small SKorean Kitchenware manufacturer, Living Art, began churning out the first products in an industrial park at the NK's border town of Gaeseong, which was is jointly constructed by 2 Koreas. KEPCO started to supply electric power to Gaesung Industrial Park from Jan 2005, for the first time since 2 Koreas divided.
The gap in major economic indices between South and North Korea growing wider. As of Sept 2004, the population of South and North are 47.925 mil vs 22.522 mil, total volume of trade $372.6 bil vs $23.9 bil, GNI $606.1 vs 18.4 bil, GNI per capita $12,646 vs $818 and crude import 804.8 vs 4.2 mil bbl.
A total of 1,890 NKoreans have been defected to SKorea in 2004, up nearly 50% from 2003. Turkish authorities have detained 2 NK's diplomats suspected of smuggling narcotic pills into Turkey from Bulgaria.

ECONOMY AND POLICY

BOK estimates Korea's gross national income growth in 2004 at 4.7% and sees 4% in 2005. Credit Suisse First Boston predicted the Korean economy will grow 3.6% in 2005. LG Economic Research Institute predicted that Korea would be among the Asia's worst performing economies in 2004 as well as 2005, as consumption remains shy and demand in its major export markets fades, while overall economic growth in Asia would average 7.7% in 2004 and 6.9% in 2005.
Finance Minister suggested the country may need a further interest rate cut and more spending to achieve economic growth of 5% in 2005, expressing his disappointment that BOK had left the rate unchanged, after it had cut overnight call rate to a record 3.25% in Nov, the second reduction in 4 months.

Korea achieved a record export of $254.2 bil in 2004, up 31.2% on year, and import of $224.2 bil, up 25.5%, creating the highest trade surplus in history, despite the adverse environment including currency exchange. Korea's exports of information and communication technology products reached a monthly record high of $6.89 billion in Nov, a 20 % increase on year. Korea's exports to USA surged 26.94% on year to $38 bil during the first 10 months in 2004, propelled by shipments of automobiles and wireless communication gear. Exports of IT goods passed $75 bil in 2004, thanks to growing shipments of semiconductors and mobile phones. Due to high oil prices, the cost to import energy surpassed $40 bil for the first time in 2004, marking $44.4 bil for 11 months in 2004, 29% up on year.

Korea's consumer confidence slumped to 4-year low in the fourth quarter, to 77 points from 80 in the third quarter. The consumer confidence index fell to 86.6 in Nov, same as the one in Oct, the lowest in 4 years. Korea's business confidence index dropped to 77.8 points in Dec, the lowest since Oct 2001, as consumer spending slumped and KWon gains eroded export earnings.

The global banking powerhouse HSBC Plc was selected as the preferred bidder to take over Korea First Bank, heralding intense competition in Asia's third biggest retail banking market. Morgan Stanley agreed to buy KEB Commerz Investment Trust Management to expand its funds business in Korea, acquiring 2.76 mil shares of the asset manager from Korea Exchange Bank for KW28 bil.
US Investment bank Goldman Sachs plans to open a branch in Korea in 2005.

Parliament proposed a bill to prevent foreign speculative funds from taking over local blue chip companies, requiring foreign investors to report to the Ministry if they intend to exercise their management rights. Korea's finance regulators is to open a formal investigation into British pension fund, Hermes Investment Management, amid growing suspicion that it engaged in share price manipulation to increase its profit from the sale of Samsung Corp shares. Korea has imposed anti-dumping duties of up to 40% on Japanese poly-vinylchloride makers while an investigation into dumping charges proceeds. Anti-dumping duties are effective tentatively from Dec 20 through April 19.

CHAEBOL

The Korean business community expressed strong disappointment over the National Assembly's passage of the revised Fair Trade Act aimed at curbing the power of family-run conglomerates. Under the new Act, financial affiliates of chaebols will have their voting rights in other affiliates slashed to 15% by 2008 from the current 30%.
The Fair Trade Commission took action against 12 subsidiaries of 6 chaebols, for violating its equity investment rule. At present, 17 business groups with total assets exceeding KW5 tril cannot buy stakes in their units and nonaffiliated firms in excess of 25% of their net combined assets. The violators include 3 units from both SK and Hanhwa Group, 2 from both Kumho Asiana and Doosan, and one each from Hyundai and KTF Group.

Korean chaebols joined their hands to save each other from possible hostile attack by foreign forces. Samsung Electronics (SEC) bought 1.4% stake in SK Corp who is in the middle of the battle to protect its management right against Sovereign Asset Management, expecting to restore its strained business relations with SK Telecom who has bought 40% of its mobile phone sets demand from SEC.
About 50 CEOs formed a civilian forum to protect local industries of display units, semi conductors and mobile phones from the attacks by foreign patent dispute. Samsung SDI is in dispute with Fujitsu, LG Electronics with Matsushita on patent, and they are expecting substantial leakage of high valued technologies to China.

Samsung Group decided to put KW7.3 tril for R&D in 2005, 20% up from 2004, aiming to make its major products the world best class. SEC plans to invest KW25 tril in the chip business until 2010 to achieve accumulated turnover at KW200 tril, creating 10,000 more jobs. SEC eclipsed Hewlett-Packard of USA as the worlds second-largest maker of liquid-crystal-display monitors during the third quarter. SEC and Sony have signed a licensing agreement to share 24,000 basic electronic industry standard patents necessary for product development. Samsung Networks has agreed with Singapore Telecom (Singtel) to jointly market private data networks to Korean companies.
Samsung Corp won a $875 mil contract to build the worlds tallest skyscraper in Dubai. It has also clinched a $85 mil order from Formosa Group for a project to expand and replace the refining facilities.

LG Electronics (LGE) became No.1 supplier of code division multiple access (CDMA) handsets in USA during the third quarter, moving ahead of SEC. LG Group and the creditors of LG Card hit the dramatic settlement at the last day of the year, to invest KW500 bil each to save the company from liquidation and rapidly settle the market, after months long struggling among the company, creditors and LG Group.
LG Caltex Oil Corp is to change its name to GS-Caltex Corp under the wing of GS Holdings Group in next March, reflecting group's spinoff into LG Group and GS Group.

The appeal made by Sovereign Asset Management to force SK Corp to hold extraordinary share holders' meeting to oust the current management, was rejected by District Court, as general share holders's meeting is coming soon in this Spring. SK Engineering sold its total stake of 3.38% in SK Corp, to a local trust company, in what appears to be an apparent move to help its sister company to fend off a challenge from a hostile takeover. SK Corp's friendly share has been increased 15.63%, overshadowing Sovereign's 14.86%. Wellington Asset Management of USA sold its 2.81% stake in SK Corp, taking KW90 bil worth profit, but lowering its stake to 6.26%.

POSCO extended a contract with BHP Billiton, the worlds third-largest miner of iron ore, for the supply of 125 mil tons of ore over the next 10 years. It is also to buy a 2.5% stake in one of Elk Valley Coal Partnerships, a coal mine in Canada to help ensure fuel for sharply rising production demands. POSCO has agreed to buy a 5% stake each in the Carborough Downs and Glennies Creek coal mines in Australia owned by AMCI to secure supplies of the raw material.

Korea's accumulated annual exports of vehicles have exceeded $30 bil for the first time, reaching $31.8 bil worth of vehicles in 2004, up 36.5% on year. Hyundai Motor was ranked fourth in terms of customer loyalty in the US car market this year. Ssangyong Motor has received a KW179 bil contract to supply up to 9,200 Rexton sport utility vehicles to Morattab Industrial Manufacturing Iran.

Korea's overseas construction orders surged to a 5-year high in 2004, winning the orders valued at $7.5 bil, up 105% on year. Daewoo Construction won the order for 2 gas plant projects worth 180 mil, ie Nigerian LNG Train 6 PJ of 4.8 mil output LNG Plant constructing during 4/05-5/07, and EPC BRT expansion project of 65000 bbl NGL plant during 1/05-9/07. KEPCO agreed to set up a joint venture with Henan Provincial government to build 2 coal-fired power plants in China at the cost of $620 mil.

Curitel Communications won a $1.6 bil order to supply handsets to UTStarcom of USA in 2005. Hyundai India Telecom, a unit of Hyundai Group, plans to spend $50 mil in the next 5 years to build a mobile phone factory and a R&D center in India. Singapore Investment Corp was reported to buy Lone Star Funds Star Tower in Seoul for about KW900 bil, increasing its real estate investments in Korea. E-Mart will open 3-4 new stores in China in 2005 to crank up its effort to tap the worlds most populous market.

MONETARY AND ECONOMIC INDICES

Share price index in Korea stock exchange started the month at 876, fluctuated in the range of 842-884 and ended firm at 895, 10% up from the beginning of the year. Market tried many times to break 890 barrier through the month, only able to do so at the last day of the year, helped by the rally in US stock market. Deutsche Bank named Korean bourse as second most attractive one for the investment among the world major stock markets, after Norway.
The exchange rate of KWon has kept steady through the month in the box of 1041-1058 against USDollar, but hit 1,035 at last day, the lowest in 85 month, in the fear of Chinese Yuan's revaluation in Jan. Foreign exchange reserve kept increasing for 20 consecutive months to reach $199.07 bil at the end of the year, up $6.46 bil from Nov.
Koreas consumer prices rose of 3.6% in 2004 on year. The yield on 3 years corporate bond has been stable in the range of 3.70-3.76% through the month. Engels coefficient, the percentage of food costs to total spending, reached 28.4% in the July-Sept period, the highest since the third quarter of 2000.

SHIPBUILDING AND SHIPPING

Korean shipbuilders won a record volume of orders in 2004. HHI had the orders for 104 ships in 2004, valued at $8.3 bil, the largest annual volume in its history. DSME won orders for 65 vessels, worth $6.5 bil up 54.6% on year. SHI over-achieved its annual business targets by winning orders for 61 vessels, valued at $6.4 bil.
The prices of thick steel plate from China showed declining tendency in Dec, to $540-550 level from $570 per ton. But, since POSCO plans to raise the price in Jan 2005, price seems to keep firm thereon. POSCO and 3 big yards formed a joint consultancy to discuss the improvement of steel quality, development of next generation material, price adjustment and proper supply of steel.
WTO cleared Korea of breaching the global commerce rules, rejecting EU's complaint over Korea's allegedly unfair subsidies to shipyards.
KOEXIM Bank is to offer KW24 tril in loans and lending guarantees to companies in 2005, a 41% rise from 2004, allocating KW10.8 tril to exporters, KW1.1 tril to overseas resource developers and KW1.6 tril to importers of resources and advanced products.

HHI's order book has, as of end Nov, 214 ships of 15 mil GT, worth $13.93 bil, exceeding Japan's annual building capacity of 10 mil GT. HHI signed the MOU with Ulsan City to construct and use 1300 m outfitting quay. HHI won the order worth $150 mil for the fix gas production platform from Vietnam. HMD procured 2.5% stake in HHI increasing to 7.5%, becoming third largest share holder, after MJ Chungs 10.8% and KCCs 8.15%. Offenheimer has 5.05%.
DSME received order from K-Line for 2 x 38K LPG and Hamburg Tankers 2 x 114.5K dh ice 1A tanker. DSME recorded operating loss of KW40 bil on the sale of KW407.1 bil in Nov. DSME plans to expand its capacity to build 14 LNG carriers a year by 2006, from the current 8. Daewoo Int won a $150 mil contract from the Indonesian Navy to build landing platform dock ships, including 3 standard ships with landing platform docks and one command ship.
SHI got the order from Japanese consortium of MOSK, NYK, KLine and Mitsui for 1 x 145K LNG for RG II, AP Moeller 2 x 153.2K LNG and 4 x 9300 TEU, and KLine 2 x 153K LNG carriers. SHI completed the dreamy design for 12,000 TEU container vessels which can carry 1.5 mil sets of 29 inch color TVs, after having won 21 units of 9,000 TEU class ships. It is 383 m long and 51.6m width with 26 kt. SHI will continue to develop bigger capacity of 14000 TEU.
Hanjin Heavy got the order from Korean Navy for 2 units of high speed landing crafts. STX has jointly developed with DNV the design for 38K LPG, Prismatic type, expecting cost saving effect with remarkable improvement of cargo support system.   
Daesun agreed to build with Josco Shipping for 2 x 1043 TEU container ships.
INP got the orders from Evaland for 4+2 x 13K chemical carrier and Lauritzen Kosan 4+2 x 8K LPG/Ethylene carriers.
Nokbong secured order from Lotus for 4 x 13K chemical carrier.

Arab Emirate undertook the management right of New Busan Harbor for $1.15 bil, entering Korean port market.
HMM bought Pacific Courage, 269K VLCC, from Iino Kaiun at $41 mil for the delivery of April 2005. It has been on charter to HMM for past 4 years. HMM has been fined KW2 bil by the Financial Supervisory Service (FSS) over accounting irregularities during 2000-03 period. FSS claimed HMM had inflated its profit by KW1.38 tril by miss-stating sales and costs, rekindling a scandal on its secret payment to NK in 2000. HMM announced to accept FSS's claim and to pay the fine, clearing the past to reborn as clean company.
Seyang Shipping purchased a 146K caper for KW12.07 bil.
Seven Mountain Shipping completed the procurement of Woobang Construction, after paying KW335.9 bil.