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  Korea Report - September 2005
  Author : Hwang & Co     Date : 05-10-10 14:36     Hit : 34739    
Topics.

-Cheonggye Stream gives a breath of fresh life to Seoulite.
-Popular vote showed the lowest support to President Roh.
-Japanese PM hit land slide victory in snap election, with concerns about his swing to the right and militarism.
-Korea has the fastest aging population and lowest brithrate in the world.
-6 parties reached a dramatic consensus on NK¡¯s unclear program.
-Hyundai Asan hit the rock in its business with NK.
-Korea¡¯s export recorded a mothly high at $24.72 bil.
-Samsung Group simmered over its corporate governance structure, corruption charges and defunct Samsung Motors.
-KOSPI continues rally renewing the records.
-Korean yards expect a lot of offshore projects.
-KOGAS selected prequalified bidders for its 4 LNG NB projects.

GOVERNMENT AND SOCIETY

The bustling heart of Seoul has been given a breath of fresh life when Cheonggye Stream started flowing again after a 26-month-long environmental work. The restoration of the stream, which was covered with concrete around 50 years ago as part of government-led industrialization efforts after the Korean War, is another step along the path of turning gray Seoul into green city.
Seoul City signed an agreement with Hanoi to help Hanoi develop the main river in the capital in a project modeled after the recovery of Cheonggyecheon, providing 90% of the expenses by establishing plans to develop the Hong River area and share know-how on its experiences of restoring Cheonggyecheon.

President Roh Moo-hyun held a summit conference with the presidents of Central American Alliance (SICA) states during his visit to Central America and declared Korea will join the Central American Bank for Economic Integration in order to form a closer business partnership. Korean government considers positively extending $94 mil for the projects undergoing with Central America, aiming to expand trade and economic cooperation with the countries in the area.
President Roh stressed the world must eradicate the legacies of imperialism and avoid great power politics in international affairs, in his speech before the UN World Summit in New York.

President Roh invited the main opposition GNP's Chairwoman Park Geun-hye to presidential residence for luncheon to have one-on-one talks, expecting a watershed in the two-month long political dead-lock over the president¡¯s ideas for a coalition government. They agreed to cooperate on a broad range of issues including the economy and NK, but just reaffirmed the differences on the idea for a coalition government. Presidents has offered to the GNP to relinquish all his powers or cut short his five-year term as president, if the opposition party agrees on a coalition government to carry out fundamental political reforms.

A popular vote showed only 20% of people approve President Roh's management of the country, the lowest since his administration launched. For the worse, ruling party has 16.3% support, the lowest since its establishment, while opposition GNP is favored by 30% and Democratic Labor Party 10.3%.

Japanese Prime Minister Junichiro Koizumi's gamble hit the big jack-pot. He earned a landslide victory in snap elections after his dissolution of the Lower House, securing absolute majority with 296 seats, first time in 15 years. His ruling party is strengthened for his mandate to split up and sell off the postal systems. His victory was congratulated by various sectors but the applause was muffled by wide spread concern that it might encourage him to manage his policy to swing to the right and the militarism. After failed to attain a permanent seat on the UN Security Council, Japan is to propose hikes in contributions to UN by China and Russia while cutting its own, seeking a cut from Japan¡¯s payout of 19.5% in 2006, the second largest after the USA, hikes in the contributions of China and Russia whose contributions are only 2.1% and 1.1%, respectively.

Government expressed serious concern over a violent protest by anti-American activists seeking to demolish a statue of US war hero Douglas MacArthur. The riot police and anti-US protestors clashed at a park in Incheon where the five-meter bronze statue of MacArthur has stood since the end of 1950-53 Korean War. The government struggled to reassert its commitment to protect the statue, as controversy over the monument showed signs of developing into an uncomfortable question over the amity between USA and Korea.

Economic leaders of the 21 Asia-Pacific Economic Cooperation member nations concluded their annual meeting, by agreeing on the urgency to establish consolidated efforts to enable a freer and more stable movement of capital and to counter the effects of an aging population upon their economies, although acknowledging that soaring oil prices present a significant challenge.
Korea, China and Japan made a general agreement to form a community for joint management against energy crisis, covering all necessary field including oil exploration, import, transportation and storage. They shared same feeling that they have relatively ignored by world oil industry, despite their consumptions are ranked 5th, 2nd and 3rd respectively. They wish to raise their price making power by joint procurement and diversification of supply sources. Daily consumption of 3 countries marked 14 mil barrel this year and will be increase to 20 mil by 2010. 

Korea has the worlds fastest aging population with its average life expectancy of 77.9 years, the highest in the world. The rapidly aging population may bring the nations stagnant economic growth in the coming years. Growth is estimated to remain in the mid 3% level between 2011 and 2030 and could drop further below 2% after 2030. It is also suffering with the worlds lowest birthrate of 1.16 children for every woman of child-bearing age.
Korea's per-capita income of $13,000 in 2003, is forecasted to reach $45,000 in 2040, assuming Korea's account for 2% of the global economy, compared to 1.7% in 2003.
Aiming to close the widening gap between the country's economic haves and have-nots, the government announced a package of welfare plans into which they vow to funnel a total of KW8.6 tril over the next 4 years.
To boost business investment from home and abroad, the corporate tax rate in Jeju Province is to be greatly reduced from the current 25% to 13% next year. It will be time to coincide with the provinces move to designate Jeju Island as a Special Administrative Zone.
The number of tobacco smugling cases came to 188 worth $10.48 mil in the first 8 months of this year, up sharply from 65 cases for all of 2004, in the wake of a hike in cigarette prices late last year.

A New Stone Age log fishing boat, presumed to be the oldest of its kind ever discovered in the world, has been excavated below layers of shell midden in southeastern tip of Korea, as the first discovery from the prehistoric era, about 8,000 years old.
Dutchman Dick Advocaat made contract as Korean Soccer coach to lead the Korean team until the end of 2006 World Cup In Germany.
A total of 26,569 foreigners from 25 countries registered for the Test of Proficiency in Korean language this year, doubling from 17,545 last year.
Domestic emmission of materials, such as Freon and Halon, which detroy Ozon layer in the atmosphere, has been greatly reduced by 81% to 5.573 ODPt from 28.953 ODPt in 1992.

NORTH KOREA AND NATIONAL DEFENSE

The Cabinet endorsed a proposal to raise next years military budget by 9.8% on year to KW22.8 tril to beef up its war capability against NK.
Korean Army plans a drastic reform that includes simplifying command head quarters and downsizing the number of troops to 500,000 from the current 680,000 by 2020.
SKorean and Chinese navies agreed to establish a telephone hotline by Dec to ensure security in the waters between 2 nations, aiming at exchanging information on Chinese fishing vessels poaching in the Yellow Sea and unidentified aircraft and ships approaching the area.

The six parties, invloved China, Japan, Russia, USA, and the two Koreas, reached a dramatic consensus on NK's nuclear weapons programs after last-minute delays, agreeing on a joint statement, covering NK¡¯s return to NPT, acceptance of IAEA¡¯s inspection on nuclear facilities, consideration on completion of light water reactor and supply the electricity from SKorea. The talks resumed following a five-week recess after envoys were unable to agree on a statement of principles during 13 earlier days of meetings.
USA and NK showed distinctively different interpretations of the agreement when to start discussing the light-water reactor issue, just a day after 6 parties agreed on a set of principles in Beijing, indicating that a tough negotiation process lies ahead. NK interpretted the agreement that the supply of light water reactor first, then the return to NPT and accept the investigation IAEA followes, but USA insisted after verifiable demolition of all nuclear material in NK, reator matter will be discussed.
Estimations for constructing facilities, and creating and transmitting electric power to NK will cost around KW7.72 -KW11.72 tril for the next 10 years.

Relations between Hyundai Group and NK have cooled down, after Hyundai dismissed Kim Yoon-kyu last month, then its president and Hyundai's pointman for its business operations in the North since the 1990s, over allegetions of embazzlement. The chairwoman of the Group recently received the cold shoulder during her visit there, NK asked Hyundai to reduce the number of Geumgang visitors to 600 a day from the current 1,000-1,200. Putting more strain on its ties with Hyundai, NK proposed for Lotte Tours to take part in the tours to Gaesong, for which Hyundai Asan signed a contract with NKorean government in 2000 for exclusive rights.

ECONOMY AND POLICY

Korean government unveiled a KW221.4 tril budget plan for fiscal 2006 that marks a 6.5% gain from this year, aiming mainly at bolstering the economys growth potential. Korea is likely to post a tax revenue shortfall of KW4.6 tril this year, slightly more than last years KW4.3 tril.

Korea`s exports in Sept rose 18.7% on year to $24.72 bil, the highest monthly increase ever, passing the $24 bil mark for the first time, powered by greater overseas demand for IT products and electronic appliances, showing strong growth for the second consecutive month, despite the strengthened KWon, surge in crude oil prices, Hurricane Katrina, and strikes at the nation`s 2 biggest automakers. The imports gained 20.7% to $22.65 bil in Sept, making trade surplus $2.07 bil, from $1.55 bil in Aug.
Overall shipments to China, Korea`s largest export market, grew 24.5% on year in Sept, while the exports to USA, the second-largest trade partner, declined 17%. Korean exports of information and technology goods rose 8.4% on year to $6.56 bil in Aug, gaining at their fastest annual pace in 7 months, and representing about a quarter of the country's overall exports for the month. Dampened by strikes at major carmakers, Korea's industrial production growth slowed unexpectedly 5.5% on year in Aug to show the first decline in 4 months, maintaining still the upward trend for the sixth month.

Foreign investment in the country rose by $74.2 bil to $418.4 bil at the end of 2004, from a year earlier. Korean investment abroad for the same period increased $68.1 bil to $328.1 bil, mostly generated from a $43.7 bil valuation gain in the nation's foreign reserves. Domestic companies plan to increase investment by more than 24% in the second half of 2005 on year on the back of an expected economic rebound and strong exports. Spending by foreigners in Korea plunged 24.4% on year to KW929.6 bil in the second quarter due to the USDollar's weakness against KWon.
Consumer confidence fell 0.4% to 94.8 in Aug for the fifth staright month, weighed down by surging oil prices and the new property policies unveiled in Sept, raising concerns that the economy may not be able to make a drastic trunaround as many anticipated.

Government plans to sell $1 bil of foreign currency bonds in Oct-Nov, taking advantage of a higher credit rating to lower funding costs for local companies, Asia¡¯s most frequent corporate borrowers.
Standard & Poors has raised foreign-currency debt ratings on Kookmin Bank and 4 other domestic lenders one level to A-, the highest levels since the 1997-98 Asian financial crisis.
Korea Development Bank plans to price $500-750 mil of five-year bonds to yield about 0.33% more than mid-swaps. Industrial Bank of Korea plans to sell $500 mil of bonds to investors in Asia and Europe, using the proceeds to repay debt. EXIM Bank will loan $20 mil to Nicaragua to help the country improve its waterworks system.
In an effort to curb the increase in money laundering, the government has strengthened reporting guidelines for cash transactions at financial companies. Starting next year, local financial institutions will be required to report all cash tarnsactions worth $50,000 or more by individuals made in one day.

The government plans to develop its state-run oil company into a major energy developer in Northeast Asia to cope with soaring oil prices, investing KW16 tril in oversea¡¯s oil exploration and development projects to raise the energy independence. Korea National Oil Corp is to raise its daily oil production capacity to 300,000 barrels by 2013, by increasing its assets to KW4 tril from the current KW1.1 tril. If the series of plans succeed, the country will be able to produce nearly 18% of oil from the fields it controls, exporting $20 bil worth of energy plants. KNOC secured 50% stake in the new oil field in Yemen, whose estimated reserve is about 250 mil barrel.
Korea plans to release 2.88 mil barrels of its strategic petroleum reserve in an effort to stabilize the oil market in the wake of the Hurricane Katrina disaster. An additional surge in oil prices for the remainder of the year is likely to cut deep into the economic growth of Korea. The prices of Dubai crude, on which Korea depends for about 80% of its oil imports, averaged $46.45 a barrel in the first 6 months of this year, but they could soar above $60 a barrel at any time.

CHAEBOL

8 Korean companies, including Hanijn Shipping, Hanhwa, Hyundai Motor (HMC) and LG Electronics (LGE), POSCO, Samsung Electronics (SEC), Shinsaegae, and SK Telecom (SKT), joined the Forbes list of 50 top Asian firms in the magazine¡¯s Oct issue. Japan claimed the most number of companies on the list with 13.

Samsung Group said that it hopes to work out a compromise with the government over the escalating controversy concerning its corporate governance practices. Samsung finds itself in hot water over claims from lawmakers and civic groups that some lesislated financial bill was revised in favor of Samsung to maintain its controversial corporate governance structure.
SEC has developed world's first 16-gigabit flash memory chip using 50-nanometer technology. A memory card made of two of these chips can store data equivalent to 200 years of a 40 page broadsheet daily newspaper or 8,000 digital music files. SEC has launched commercial service of a faster broadband Internet network in the Netherlands with Versatel Telecom Internationl. It allows data to transmit at speeds of up to 24 gigabits per second, nearly 3 times faster than the existing broadband Internet system. SEC has signed a deal to export its new mobile Inetrnet technology WiBro to Sprint Nextel Corp, No 3 mobile phone operator in USA, to provide with handsets and a networking system for Wibro for a trial run of the local wireless broadband technology. SEC has developed a multi-chip package that holds upto 10 memory semi conductor chips in one, which, as the first in the world, is formed of two 4-gigabyte NAND flash memory chips, four 512- megabyte DRAM chips and four 256-megabyte NOR flash memory chips and has a capacity of 11 gigabytes. It is expected to contribute to space efficiency in mobile phones and other portable devices with its micro size. SEC plans to invest $33 bil in next 7 years on factories to meet demand for chips used in devices such as Apple Computer Incs iPod music player, generating $61 bil in chip sales and create 14,000 jobs in Korea by 2012.
Creditors of the now-defunct Samsung Motors plan to file a lawsuit against its former parent Samsung Group to recover debts left with KW2.45 tril in bad loans after the company went insolvent in 1999. They received 3.53 mil shares in Samsung Life Insurance from Samsung Group Chairman Lee Kun-hee as colateral for the debt, but have failed to sell them.
Samsung Engineering signed the contract with SHARQ, Saudi's national Petro Chemical Corp's sister company, worth $350 mil petro chemcal plant to produce 700,000 tons of ethylene glycole annually in Al-Jubail, the biggest EG producer in the world. It will be completed by Feb 2008.

LGE is to invest $130 mil by 2011 in Wroclaw, Poland, to produce 500,000 units of the refrigerators and 3.5 mil units of LCD TV annually, securing 11 production basis in the world, namely Changwon, BRICs, Mexico, Turkey, Thailand, Vietnam and Indonesia. LG Philips LCD also plans to establish 2 units of module plant in Wroclaw.
LG Philips LCD has completed a production line for slim cathode-ray TV tubes, with the plan to increase its annual output to 8.2 mil in 2006, 18 mil in 2007 and 32 mil in 2010, aiming to become the center of worlds television tube markets
GS Caltex decided to directly import 5.0 mil tons of LNG by 2010, enhancing its position as integrated energy leader. It will complete its LNG receiving terminal by 2009 in Gunsan.

HMC agreed on a 6.9% pay rise and a 300% bonus to end its union's 2 week strike that has cost KW591 bil in lost production. The strike has been annual event since its workers union was set up in 1987. Following a final settlement at HMC, Kia Motors also reached an agreement with its unionized workers to replace a late-night shift with an additional daytime shift from 2009 while raising wages as mush as they did last year.
HMC Group announced that Kia Motors construct the auto plant in Zilina, Slovakia, as Kia's strategic platform to win the European consumer. It started the construction in April of last year, investing 1 bil euros, aiming the completion by Dec 2006 to produce 300,000 vehicles a year.

SK Corp signed MOU to acquire Incheon Refinery, investing KW3.2 tril. It has thus total refining capacity of 1.115 mil barrel a day, a step ahead to be the leader in Asia-Pacific. SK Corp is considering building a fluid catalytic cracking facility in Ulsan, by investing KW2 tril, to meet rising demand for gasoline. The complex may take about 40 to 44 months to build.

Doosan Heavy Ind has exported $50 mil worth of nuclear power plant equipment for the Watts Bar nuclear power plant in Spring City, Tennessee.
Doosan Infracore, formerly Daewoo Heavy Industries & Machinery, has clinched orders of machine tools worth $65 mil from foreign companies, including Rolls-Royce, Finnish and Dutch firms.

Qualcomm had collected a total KW1.48 tril in mobile phone royalties for the core division multiple access mobile phones from Korean handset makers including SEC and LGE between 2002 and 2004.
Korea Electric Power Corp plans to invest a $57.5 mil for wind power facility in northen China with China Datang Corp, taking a 40% stake and becoming the second largest shareholder of the venture over 20 years.
Korea Water Resources Corp plans to raise $120 mil in its first sale of euro-denominated bonds to overseas investors.

Overseas energy and other plant orders won by Korean builders soared nearly 30% on year to $9.8 bil a record high in the first 9 months of this year, thanks to a construction boom in the Middle East.
Hyundai Construction secured the large scale finanancing of $325 mil to carry out Jebel Ali Power Plant project, which was contracted for $696 mil.
Kyungnam Enterprise won the project from Srilanka for the construction and maintaenance of water distribution systern worth $34 mil.

MONETARY AND ECONOMIC INDICES

The Korea's Stock Exchange widely opened new era, ceaselessly renewing the record high through the month. KOSPI started the month at 1106, broke record high 1200 barrier with no hesitation and ended the month at 1231, the highest in the history, encouraged by harmonized factors with positive fundamental in economy, friendly supply and demand, and NK's agreement to give up its nuclear system, erasing negative effects from oil prices hike, hurricane in USA and rise in interest rate in USA. The KOSPI has jumped 32.93% in 2005, compared with India's 28.74%, Japans 14.45% and Singapores 11.68%. UBS Securities expects revaluation of Korean stock market, raising its forecast of index for coming 12 months from 1200 to 1400.
KWon has maintained stable against USDollar, in the box of 1036-1023-037-1042. It entered 1040 level at the end of the month, first time in 2 months. Korea¡¯s foreign reserves at the end of Sept kept the same level as Aug at $206.74 bil. Residents' foreign currency deposits in Korea fell sharply to $17.09 bil as of the end Aug, down $1.45 bil from July, due to the increased payment of oil import bills by local refiners.
BOK left its call rate, the interest charged on overnight inter-bank loans, at a record low of unchanged 3.25%, while US Federal Reserve boosted a key interest rate to 3.75% for the 11th straight time. The average interest rate on household loans rose to 5.38% in Aug, up 0.04% from June, for the second straight month on the back of rising mortagage rates. The yield on 3 years corporate bond surged  from 4.59% at the beginning of the month, rose to 5.19% the highest, but ended at 5.00%. Korea's jobless rate in Aug declined to 3.6%, down from 3.7% in July, for the first time in 5 months.

SHIPBUILDING AND SHIPPING

The manpower in Korean shipbuilding industry in 2004 has been increased to 71,781 from 66,836 in 2003, compensating rapidly rising average age of workers.
Thanks to the booming energy industries as per high oil prices, Korean yards are busy to bag the project of offshore facilities. DSME won 1+2 x semi-submersible drilling rig from SeaDrill for $500 mil each, in addition to its earlier order from Chevron-Texaco's world largest FPSO for $1.0 bil, SHI had 1+1 x Drillship from Stena for total $1.04 bil, and HHI from Total with a FPU worth $1.11 bil, expecting about 20 units of FPSO new order in 2-3 years.
Korean shipbuilders demanded POSCO to take a cue from Japanese steelmakers to lower domestic prices of steel plates. Currently the export price of Japanese steel plates is KW700,000 a ton, while their domestic price stands at KW550,000. However, POSCO responded that the company provides steel plates at the price of KW680,000 per ton, cheaper than its main competitor, DongKuk Steel, as well as prices offered by Japanese steel providers.

Being frustrated with domestic steel makers, HHI Group is reported to proceed to import Chinese thick plates, negotiating with one of 4 major steel mill in China for the supply of 400,000 tons a year by taking some portion of stake in the mill. HHI Group consumes about 2.7 mil tons of steel a year, of which 55% is supplied by dimestic mill, 35% from Japan and 10 from others. HHI won a $330 mil project from Cuba to build a 510 megawatt diesel power generating plant for the completion by the end of 2007. Hyundai Samho secured order from D Oltmann for 1 x 5,040-teu container ship.

DSME got the order from Bergesen for 2 x 155K LNG, Exmar 1 x 150.9K LNG, Maran Gas 2 x 84K VLGC and Sea Drill 1+2 x Semi Submerged Drilling Rig.

STX is well favoured by Japanese owners, winning the orders for total 15 ships this year, namely with MOL for 2 x 51K PC, NYK 3 x 2900 teu, 2 x 2700 teu, 2 x 47K PC, Cido 4 x 51K PC and Nakagawa 2 x 11.2K chemical carriers, thanks to its available berths in 2008 and its unique position to build midium size ships. STX won the order from Cido for 4 x 51K PC, Bernhard Schulte 3+3 x 9K cbm Ethylene and MOL 2 x 51K PC in Sept.
STX appointed Chung Guang-suk, executive VP, as co-chairman of the board, replacing Kim Sung-ki, who will keep CEO and president. Shin Sang-ho was promoted to senior VP. STX considers filing a complaint with the country's anti-trust watchdog against KOGAS for limiting new market players with an entrance barrier, after being rejected from an LNG newbuilding tender, because of no experience in LNG carrier building.

KOGAS has selected the pre-qualified bidders, to build and operate one ice-class 145,000 cbm LNG Carrier to lift imports from the Sakhalin-2 LNG project, such as the consortium of HMM-HHI, SK-SHI, KLC-DSME, Hanjin Shipping-SHI, and STXPanOcean-Hanjin, dropping the consortium of STXPO-STX, because of no experience. Commercial bids are due in on 1 Oct, and successful parties will be decided on 6 Oct. The delivery will be the end of March 2008. It also requires a further 3 LNG-carrier newbuildings of about 150,000 cbm to import the gas from Yemen LNG, with the delivery at the end of Nov 2008. All 4 ships will be fixed for 20-year periods. Medium size shipping companies, such as Seyang, Changmyung, Daeyang and Samsun Logics, request KOGAS to share the stake in LNG Joint Venture. They propose to reduce the stake of KOGAS from 28 to 25%, successful bidders from 72% to 60%, then remaing 15% allocate to them. The complaints of STX yard and medium size shippers make it inevitable for KOGAS delay the schedule a little bit.

The government plans to eliminate taxes on container carriers entering or leaving the port of Busan to encourage more shipping lines to use new terminals there, with the plan to scrap the tax of KW20,000 it charges for every container, starting in Jan next year,
Hanjin Shipping is to invest 1.5 mil euro to establish exclusive terminal in Antwerp.
Golar LNG acquired 5.14% stake in Heung A Shipping through Geverand Trading, holding the stakes in all domestic major shipping companies, such as KLC, HMM, Hanjin and HeungA.