Author : Hwang & Co
Date : 07-12-04 16:47
Hit : 37765
Topics. -President Roh¡¯s ¡°modernization of press coverage¡± rushed into action. -Government proposed the law school system facing head on collision with universities. -Second summit between South and North Korea in Pyongyang. -Story of a year with 6 way talks on NK¡¯s nuclear scheme. -Korea¡¯s exports expand record high in Oct. -Foreign M&A activities could be restricted by government. -Korea¡¯s National Pension Fund struggles for survival. -Bullish stock market changed the ranking of chaebols. -Korea¡¯s M&A market rapidly grows. -Hyundai Motor Chairman donated $920 mil and launched a ¡°Social Contribution Committee¡± -Korean contractors expect $35 bil order this year. -Kwon exchange rate dropped to 900 against USD. -Under the concern on hard landing, bulker prices kept firmer. -Korean analysts warned about reckless expansion of shipbuilding. -STX acquired 39.2% stake in Aker yard.
GOVERNMENT AND SOCIETY
President Roh Moo-hyun is determined to "drive a big nail into the doors of the press rooms" during the last months of his term. The government cut internet connections at press dispatch rooms in ministry buildings Oct 11, in an attempt to force reporters to move to the new integrated briefing centers located at 2 government complexes in downtown Seoul and Gwacheon. The Government Information Agency tried to compel reporters to move into the new briefing room that was built to consolidate 16 preexisting press rooms. Almost all reporters covering the ministry have been acting together to defy the new measure. Most of the reporters have been boycotting official briefings and press conferences, protesting the plan would make the GIA the sole administrator of the press. Under the government¡¯s "modernization measures of press coverage" plan, journalists are banned from being stationed in government offices, and are instead to attend the news briefings by using temporary press cards. The opposition Grand National Party has vowed to scrap the new measure, pledging to give seats back to journalists if the party takes power after the Dec 19 presidential election. Its candidate Lee Myung-bak currently leads the race, with an average of over 50% support in opinion polls.
Korea and EU wrapped up their fourth round of talks with no breakthroughs and with mounting disappointment by both parties over failure to narrow differences on the trade. Both sides were challenged by purported deal breakers, such as autos for the EU and antidumping rules, agriculture, and Gaeseong-made goods for Korea. They aim to seal a comprehensive deal that would boost bilateral trade, currently worth $79 bil. Brussels' demand for similar trade conditions as the one Seoul sealed with Washington in June, complaining that the one offer to the EU is approximately $10.5 bil worse than the one to USA. The next round of talks will be held in Brussels in the week of Nov 19. China and Korea expect to finish their joint feasibility studies for a possible FTA in Feb 2008. The negotiations on FTA with Japan are at a stalemate after 6 rounds of talks, and a pact between Korea and 9 of the 10 members of the Association of Southeast Asian Nations, except Thailand, have been discussing to complete FTA talks by the end of this year. The proposed FTA consists of 4 accords on merchandise, services, investment and dispute settlement. Korea's trade with ASEAN, its fifth-largest trading partner, reached US$53.5 bil in 2005. Canada and Korea held a series of talks for FTA, aiming to conclude within this year, but failed to find breakthrough.
The Education Ministry for the first time unveiled its proposal for law school student numbers, suggesting a maximum of 1,500 students in 2009 with a gradual increase to 2,000 by 2013. According to the proposal, the lawyers will be able to qualify both from law schools and through taking the bar exam between 2012 and 2016. The ministry will grant final permission to implement the new system in Sept 2008, with the law schools expected to open in March 2009. There were 8,423 lawyers nationwide as of late 2006, but still far behind the OECD average. There were 5,758 people per lawyer in Korea in 2006, compared to the OECD average of 1,482 people per lawyer. The government and universities are headed on a collision over the quota for law school students. University officials urged the government to increase the quota to over 3,200 to correspond to the public's needs for more lawyers. If the government-set quota takes effect, only about 15 out of 43 universities preparing for the program will get licenses. President Roh Moo-hyun on Oct 24 endorsed a government plan that could give provincial universities an advantage in opening graduate law schools. Universities located in provincial regions have been pushing for a fair chance in a competition against bigger and better known schools in metropolitan areas for permission to launch three-year law schools in March 2009. The National Assembly Committee on Education demanded that the ministry present another "comprehensive and reasonable" plan. The Education Ministry announced on Oct 26 to increase the number of law school students to 2,000 from 2009, deleting the clause on the 2013 figure, in the face of growing opposition. The Korean Council for Presidents of Private Universities, representing 158 private universities, kept warning to boycott the entire plan for the three-year graduate law schools.
National Intelligence Service's truth committee made a final report that former President Park Chung-hee endorsed, and may have ordered the 1973 abduction of Kim Dae-jung, who was then organizing an uprising against the military regime. Kim, who became president in 1997, and went on to win a Nobel Peace Prize, was abducted from a hotel in Tokyo on Aug 8, 1973, and was held for 5 days. Kim's office denounced the governments of Seoul and Tokyo agreed then to a "political closure" regarding investigations into the kidnapping of Kim, for the sake of bilateral relations. SKorea expressed regrets it was responsible for kidnapping Kim Dae-jung in 1973 in Tokyo.
Korea will be declared as having abolished the death penalty "in practice" by Amnesty International at the end of this year. Dec 29 will mark the 10th year since Korea carried out its last execution, meeting the requirement to be named an "abolitionist in practice". Korea retains the death penalty but no death sentences have been carried out since 1998. 64 criminals remained on death row as of early this year.
Koreans over the age of 65 are expected to outnumber those under the age of 15 two to one by 2030. The country's elderly population will grow by 7 million over the next 23 years, while its child population will fall by 3.2 million to account for 24.3% and 11.4%, respectively, of the total population. The report added that the country will become an aged society by 2018, and super-aged by 2026. The elderly account for more than 14% of the total population in an aged society, and a super-aged society has an elderly population of more than 20%. According to the report, by 2030, there will be less than 3 productive individuals for every elderly Korean. At present, the ratio equates to 7.3 productive individuals supporting every one person over the age of 65.
The traditional preference for boys among Korean mothers is declining. A study showed that 10.1% of married women preferred to have a son, decreasing from 14.1% in 2003 and 40.5% in 1991. Households in Korea spend more on private education than any other member country of the OECD. The ratio of private education fees to GDP in Korea recorded 2.9% in 2003, the highest among the 30 OECD countries. It is 4 times higher than the OECD¡¯s average 0.7%.
NORTH KOREA AND NATIONAL DEFENSE
The leaders from 2 Koreas met face to face for the first time in 7 years on Oct 2. President Roh Moo-hyun became the first SKorean head to cross the densely guarded Military Demarcation Line on foot en route to Pyongyang. Kim Jong-il, 65, stood at the end of the red carpet in front of the April 25 Hall of Culture in Pyongyang to meet President Roh before the welcoming ceremony. There were no hugs or any signs that they were delighted to see each other, but only handshakes between them. However, Kim¡¯s presence at the site was a dramatic surprise welcome on Roh's historic visit. Both leaders signed, on Oct 4, the 10-point "Declaration for the Development of South-North Relations and Peace and Prosperity," wrapping up the three-day summit talks in Pyongyang. The following is the gist of the agreement in Pyongyang. 1. South and North Korea to actively implement the June 15 Joint Declaration. 2. Two Koreas to work for mutual respect and trust in order to overcome differences in ideology and systems. 3. Two sides to set up a joint fishing area in the West Sea to avoid accidental armed conflict. Both sides to hold defense ministerial talks in Nov in Pyongyang to discuss the ways of supporting inter-Korean economic cooperation and easing military tensions. 4. South and North to agree on need to end the current armistice and establish permanent peace. Two Koreas to make joint efforts for the smooth implementation of the Sept 19 and Feb 13 six-nation nuclear agreements. 5. Both sides to create a special peace zone around Haeju in NK and nearby areas, as well as work towards a joint fishing area, peace waters, special economic zone, and joint development of the estuary of the Han River. 6. Two Koreas to develop cooperation in the history, language, education, technology, culture, sports and social sectors, and to open a direct air route between Seoul and Mt Baekdu to allow SKoreans to visit the mountain. 7. South and North to actively push for humanitarian cooperation and expansion of reunions of separated families. 8. Two Koreas to strengthen cooperation on the international stage. 9. Both to hold talks between their prime ministers in Nov in Seoul to implement these agreements. 10. Leaders of 2 sides to hold frequent talks in order to consult on pending issues.
The landmark agreement signed was greeted with both welcome and scorn in SKorea. Progressives, the business community, and separated families have hailed it as a new milestone to further peace and economic development on the divided peninsula. However, the accord was slammed by critics concerned about the potential economic burden on the South and the lack of any significant measures to improve human rights in NK and to secure the release of civilian abductees and prisoners of war. The right-wing organizations called it a "tool to extend political powers during the upcoming presidential election." The agreement on economic cooperation paves the way for an expansion of industrial ties between 2 Koreas, but there are many problem existing. NKorean cities are still in lack of basic infrastructure such as a power grid and telecommunications facilities. The customs clearance of SKorean manpower and materials are heavily regulated by NKorean authorities. Grand National Party pledged to cooperate "fully" on further advancing ties with NK, however, it urged the president to seek parliamentary endorsement before pushing ahead with the investment in NK's infrastructure. The GNP recommended that further inter-Korean exchanges should hinge on NK's commitment to denuclearization. GNP emphasized that further inter-Korean exchanges should hinge on NK¡¯s commitment to denuclearization.
President Roh has stirred uproars again with his latest remark on the status of the disputed West Sea border with NK. Roh told a press conference that the Northern Limit Line, the de facto inter-Korean border, is "not an official territorial line," and was also "not agreed upon by 2 Koreas." The conservative GNP attacked the president for risking national security and weakening the South's position ahead of the inter-Korean defense ministers' talks slated for Nov. The NLL was unilaterally drawn by the UN forces at the end of the 1950-53 Korean War, and there has been no official recognition by NK. In the 1992 Inter-Korean Basic Agreement, 2 Koreas agreed to abide by the NLL as a de facto sea border, while also committing to negotiations over whether or not to draw a new borderline.
A year ago on Oct 9, the world was rattled by NK¡¯s defiant nuclear bomb test, just 2 months after the test of short and long-range ballistic missiles in the East Sea. Pyongyang had boycotted 6-way talks, demanding a lift of the release of its $25 mil in assets in Banco Delta Asia. The UN Security Council adopted a resolution, imposing economic and commercial sanctions against NK on Oct 14. While the situation appeared grave, it turned out to be the "start of diplomacy." The bilateral meetings between Washington and Pyongyang resumed outside the six-party talks, shifting US position gradually to approach the North "engagingly." The six-party talks resumed following the bilateral talks in Dec after 13 months of hiatus. But the negotiations fell flat, because of NK¡¯s accounts in Macau. USA was forced to have another one-to-one meeting with NK in Jan this year in Berlin. At the bilateral talks, Washington promised to help Pyongyang get those assets back and in return, NK pledged to shut down its Yongbyon nuclear facilities. It was approved by 6 way talks in the name of ¡®the Feb 13 agreement¡¯ what defined the second phase of actions, a disablement of the facilities, and a full declaration of nuclear programs and materials, in return for a total of 1 million tons of heavy fuel oil and a lifting of political sanctions. The money transfer quagmire was solved at the cost of a nearly four-month-long hiatus in the nuclear negotiations. Pyongyang started to shut down its nuclear facilities in July, and allowed back inspectors from the International Atomic Energy Agency. SKorea became the first energy donor by delivering 50,000 tons of heavy fuel oil to the North in early Aug. With an operation of the first denuclearization step, the NK and USA held another round of bilateral meetings in Geneva during Sept 1-2, where USA reportedly promised to remove NK from its list of states that sponsor terrorism, and to terminate the application to the North of the Trading with the Enemy Act by the end of the year, in return for the second phase, disablement of the facilities, and full declaration of all nuclear programs abolished, also by the year's end. The six-party talks reconvened on Sept 27. A team of US nuclear experts visited NK to finalize the disablement method with NKorean officials. Washington also began the work of removing the sanctions. More complex tasks remain, including how NK will verifiably report its uranium-enrichment program, as well as the exact amount of its weapons-grade plutonium extracted from the spent fuel rods. With budding speculation over NK's alleged nuclear deal with Syria, the matter of nuclear proliferation in the past must also be clarified. Satellite photos of the Syrian site raided last month by Israel show similarities with a NKorean reactor, but do not reveal the nuclear cooperation between 2 countries. NK¡¯s demand for arms talks, in its status as a nuclear state, with USA still looms. President Bush is asking US lawmakers for $106 mil for fuel oil or comparable assistance to NK as a reward for Pyongyang following through on promises to scrap its nuclear weapons program.
USA has officially asked Korea to extend its troop deployment in Iraq and Afghanistan, as mandates for the troop dispatch are to expire by the end of this year. Korea maintains a 1,200-strong force in the northern Iraqi city of Irbil, and 210 engineering and medical troops in Afghanistan, at the request of USA. The Seoul has made no changes in the decision that it will withdraw the 210-strong forces from Afghanistan by the end of this year, but suggested to extend the troop mandate for another year while halving troop numbers in Iraq. President Roh made a public appeal of the troop extension plan, explaining the decision is in an effort to fasten its alliance with USA and to lay the ground for Korean companies' business opportunities in Iraq. President Roh faces a veto threat by his own supporters. The pro-government United New Democratic Party, the largest force in the National Assembly, called for the troop withdrawal by the end of this year as planned. Lee Myung-bak, the presidential candidate of the main opposition GNP, in contrary, offered support for Roh, in line with the conservative aim of strengthening SKorea¡¯s alliance with USA.
ECONOMY AND POLICY
IMF predicted Korea's economy will grow 4.8% this year and 4.6% in 2008. The 2007 growth forecast is 0.4% higher than the figure given in July, but next year's forecast has been lowered by 0.2%. In the meantime, The Korea Institute of Finance predicted Korean economic will grow 5.1% next year on improved domestic spending. The Korean economy expanded 5.2% in the third quarter on year and 1.4% on quarter. The experts warned that the surging KWon, together with record high oil prices, could impede Korean economic growth. The average oil import bill per barrel rose to $71.7 in Sept, against BOK¡¯s prediction of $64.
Korea¡¯s exports rose to a record of $34.8 bil up 24.2% in Oct on year, thanks to rising shipments to China and Europe. The export growth was the fastest in almost 3 years, despite of soaring oil prices, KWon appreciates and sales to USA drop. Imports surged 27.2% on year to $32.6 bil, posting a monthly trade surplus of $2.2 bil. Exports to China, the nation's biggest market, surged 33.1% in the first 20 days of Oct on year. Korea imported 8.32 mil tons of steel products from China, marking 52.7% of total steel import upto July this year, compared to 1.82 mil of 11.6% in 2003. Trade deficit of steel posted $1.49 bil last year and $2.93 bil in 7 months this year. Growth in imports from the EU has exceeded the increase in imports from Japan and USA. Imports from totaled $26.1 bil from Jan to Sept 20 this year, a 22% jump on year, while the imports from USA rose 10.9% during the same period to $26.9 bil and from Japan climbed 8.1%. Exports of Korean goods to the EU jumped 17.2% to $39.5 bil for the period. Russia became Korea's eighth-largest export market this year as local auto and electronics makers' shipments to the country expanded. Korea's exports to Russia from Jan to Aug this year exceeded $5.02 bil, up 47% on year. Korea will likely suffer a record-high trade deficit of $21.96 bil during Jan-Sept, up 16% on year with Japan for the second straight year due to increasing dependency on Japanese technology and industrial goods.
Korea's current account surplus widened in Sept as exports remained robust amid decreased overseas travel spending. The current account surplus reached US$2.42 bil in Sept, up from $573.7 mil in Aug. Koreans' spending on education abroad is set to reach $5.2 bil, sharply rising over the last 3 years, increasing by almost $1 bil every year. The BOK expects the sum to grow to a total of $5.2 bil by the end of this year. The BOK predicted that spending on overseas studying will continue to soar, reaching $6 bil by the end of next year.
The foreign M&A activity in Korea could be restricted to protect the country from possible national security threats. Antiforeign investment sentiment emerged in the aftermath of the 1997-98 currency crisis, as foreign investors bought out struggling Korean firms, and were making a tremendous amount of profits. The US subprime mortgage crisis and the subsequent wave of risk averse sentiment has prompted Korean corporations to issue bonds in foreign currenciess. 10 companies, such as Korea Midland Power, POSCO Power, Shinsegae, Daelim Industrial, Korea Investment & Securities, LS Cable, Orion, Hanmi Pharmaceutical, Megamart, and Meritz Investment Bank, raised a total of KW820.4 bil ($894.44 mil) through A-grade foreign currency corporate bonds. It represents nearly 20% of the KW4.13 tril in corporate bonds issued in the third quarter of this year. Export-Import Bank of Korea sealed its biggest international bond sale after it got orders of more than $3.5 bil. KOEXIM Bank hired ABN Amro Holding NV, BNP Paribas SA, Merrill Lynch & Co and Morgan Stanley for the sale.
The national pension fund has become one of the 5 largest shareholders in 54 firms out of the nation's top 100 listed companies, raising concerns that the state-running fund could wield disproportional influence in boardrooms and on local markets. The pension scheme currently invests nearly KW15 tril ($16.3 bil) in the Seoul stock market, accounting for over 2% of total market capitalization. The National Pension Service, the fund manager, holds over KW200 tril in the pension fund. Over 3 quarters of the money is invested in domestic government and corporate bonds. 4 major state pension funds will post an estimated total deficit of KW178 tril ($194 bil) in 2050. The largest loss will come from the government employee pension fund, which is expected to lose some KW50 tril. The pension scheme for private school teachers is projected a deficit of KW16.7 tril, while the one for military personnel is to see losses of KW5 tril. The widening deficits are already weighing on the state budget. The government will spend over KW2.2 tril in plugging deficits in the pension funds next year, up 17% from this year, and more than triple the expenditure in 2001. National Pension Service is in talks with the government agencies to start a KW20 tril ($22 bil) fund to invest in global oil and gas projects, vying with China, Japan and India for resources as prices soar.
Total consumer debt is rising at a rapid pace to KW699.1 tril ($762.4 bil) as of the end June, which accounted for 80.2% of the nation's GDP. The earned income tax paid by 6.1 million registered taxpayers topped KW9.78 tril ($10.6 bil) in 2005. The per capita earned income tax at KW1.6 mil, up 56% from KW1.02 mil in 2000.
The crude oil prices kept renewing its record high every day with variety of reasons. Dubai oil price started the month at $75.94 per barrel then ceaselessly climbed up to $83.74 on Oct 30. A sudden drop in US oil stockpiles, Turkey's continued attack on Kurdish militants in Northern Iraq, the stumbling production in Mexican Gulf and the decline in USDollar became excuses to push crude up through the roof.
LG and SK groups saw the value of their stocks rapid swell this year while other top companies showed lackluster performances. LG's 12 listed companies posted a combined market capitalization of KW63.6 tril ($68.4 bil) as of Oct 19, up 69% from the beginning of this year, while LG Electronics¡¯ aggregate stock value soar to KW13.2 tril from 8.8 tril, and LG.Philips LCD and LG Chemical recorded gains of KW4.4 tril and KW5.2 tril, respectively. SK Group outpaced Hyundai Motor Group as the nation's No 3 conglomerate as its market capitalization surged to KW53.3 tril, up 36% from KW39.3 tril in the last 10 months. Samsung Group, the nation's No 1 enterprise, raised its market capitalization to KW166.2 tril, up 17% from KW141.8 tril at the beginning of this year. Its flagship company, Samsung Electronics, however, dropped to KW88.8 tril in market capitalization, down over KW14 tril in the 10 month. Hyundai Motor Group increased its market capitalization by 10% to KW40 tril from KW36.6 tril due to sluggish performances by Hyundai Motor and Kia Motors. The fifth-largest, Lotte Group, saw its stock market value grow by 25% to KW23.1 tril from KW18.5 tril.
Mergers and acquisitions market volume in the country totaled $55.2 bil from 478 transactions during the first 9 months in 2007, representing an increase of 204% on year. Doosan Infracore's $4.9 bil acquisition of Bobcat and 2 other units of the US-based Ingersoll Rand was the largest-ever takeover of foreign firms by a Korean. The energy and power sector was the most active sector with a total of $21.6 bil in deals, largely boosted by the $17 bil spin-off of SK Corp's petrochemical business. Financial and manufacturing sectors also showed strong M&A activities, with deals amounting to $10 bil and $7.9 bil, respectively. Major contenders for M&A in near future include Hanarotelecom, Korea Express, Himart Holdings, C&M, Siltron, Daewoo Shipbuilding & Marine Engineering and Ssangyong Engineering & Construction. The sales have been delayed, but will be concluded in near future.
Korea has developed the world's fastest wireless networking technology, named "NoLA," the New Nomadic Local Area Wireless Access enables users to download data at 3.6 gigabits per second while they are moving at 3 km per hour or slower. That is fast enough to download a disc full of data in under 2 seconds, compared to about 52 seconds with normal fixed-line broadband services using the optic LAN. They expect to create a billion-dollar market, allowing ubiquitous computing at homes, offices and schools. The system will be completed by 2010, with commercialization by 2012. The International Tele-communication Union approved the WiBro, Korea's homegrown wireless internet system as the sixth standard for 3G communications in a general meeting in Geneva. WiBro allows users to surf the internet at speeds of 2-3 mbps while they are moving at speeds of up to 120 km per hour. WiBro made its commercial global debut when KT, the nation's largest fixed-line telephony and internet operator, and SK Telecom, the largest mobile carrier, launched the cutting-edge service in and around the Seoul area in June 2006. Around 40 countries, including USA, Japan and UK, are to launch the WiBro service, which provide ample market for Korean develpers. The WiBro service is expected to grow to a KW38 tril ($41.5 bil) by 2012.
Samsung Electronics (SEC) has developed the world's first 64-gigabit NAND flash memory chip using 30-nanometer process technology, a breakthrough which reinforced its position as the global top chip maker. The product is expected to blossom into a market worth $20 bil starting from 2009 when it begins full-scale production. SEC successfully demonstrated the fastest mobile data transmission based on TD-HSDPA in front of Chinese audience in the PT/EXPO COMM China 2007. TD-HSDPA is an upgraded version of TD-SCDMA, a 3G mobile telephony technology standard developed in and championed by China, with the 2 others being WCDMA and CDMA2000. China is preparing to test the TD-SCDMA service before the 2008 summer Olympics in 8 cities. SEC paid $70 mil to acquire Transchip, a system LSI non memory chip developer in Israel, as SEC¡¯s first M&A case since 1994 when it bought AST, an American computer maker. SEC is to establish Israel Research Centre of Samsung Semiconductor.
SK Securities has signed a memorandum of understanding with Chinese real estate company Suzhou United Development Group on housing development and real estate research projects in China, aiming to work together for the development of real estate projects in China including Suzhou Industrial Park. Meanwhile, SK Securities successfully bought 2 office towers in Suzhou's Times Square for KW80 bil ($87 mil) through a private real estate fund.
The Haevichi panel, "the sun shines" Social Contribution Committee, was officially launched to oversee the use of funds being donated by Hyundai-Kia Automotive Group chairman Chung Mong-koo. The committee will be responsible for overseeing the use of KW840 bil ($920 mil) which Chung pledged to charity after he was found guilty of embezzlement in Feb this year. Hyundai Mobis, an affiliate of the Hyundai Kia Automotive Group, has begun the construction of a module production plant in Georgia, USA. Located on the grounds of Kia Motors' plant near Westpoint, the plant will produce 300,000 modules a year for Kia's vehicles. The company's third plant in USA is scheduled to be completed in 2009. Hyundai Motor (HMC) launched its city car, the i10 in India. The i10 has been developed specifically for the Indian market and is Hyundai's first vehicle to be produced only at its overseas plants. The i10 replaces the Santro, known as the Atoz, which has sold more than 1.2 million units in India since 1998. The company plans to produce 120,000 units for the Indian market and export 110,000 units of the car from next year. The company is currently building an additional 300,000 unit plant in India.
Hynix Semiconductor, the world's second-largest memory chipmaker, signed a licensing deal with the US company Ovonyx Inc for development of Phase-change memory, known as PRAM, which is often cited as the next-generation memory chip that will replace DRAM and flash memory products for better performance and cost. Hynix became the first private corporation in Korea to be monitored under mutual consent by a non-governmental organization for eco-friendly production. The committee is an independent body that will not only monitor the company's post-manufacture procedures, but pre-production processes. Hynix earlier this year had to revise its plans to expand the production plants in Icheon, due to government objections concerning environmental issues. Its plans for plant expansions included copper wiring, which under the environmental laws was restricted due to the possibility of polluting the water sources of the Seoul metropolitan areas. Hynix Semiconductor plans to restart the production of non-memory chips as the profitability of its main business line, computer memory chips, dwindles amid global oversupply. The average prices of DRAM chips, which account for 67% of its total output, rose only 3% in the third quarter, after falling 43% in the second.
2 former researchers with POSCO were arrested on charges of stealing core technologies and selling them to a Chinese company in May for KW5 bil ($5.45 mil). 2 suspects resigned in Aug last year, taking with them the technologies, which can improve the productivity significantly. POSCO claimed it spent KW45 bil in developing the breakthrough technologies with the involvement of over 150 researchers for more than 10 years and the leak could cause some KW2.8 tril in losses. POSCO Power, a subsidiary of POSCO, broke the ground for fuel cell production plants in Pohang. The first stage of the world's first mass production facility for fuel-cell power generation, scheduled for completion in Aug 2008 and the second in 2010. In the first stage, testing facilities and a plant capable of producing 50 units of 1 megawatt fuel cell generators. A plant with a same production capacity will be built in the second stage. 2 plants' annual revenues are expected to exceed KW400 bil ($436 mil) in 2012. POSCO is to form a joint venture with Nippon Steel Corp, spending KW39 bil ($43 mil). POSCO-Nippon Steel RHF Joint Venture, 70% owned by POSCO and 30% by the Nippon Steel, will invest KW130 bil in building 2 rotary hearth furnaces, each capable of producing 100,000 metric tons of iron a year, in POSCO's plants in Pohang and Gwangyang by 2009. 2 steel makers had already formed a cross shareholding partnership, under which POSCO holds about 3.5% of Nippon Steel's shares while the Japanese firm has 5% of POSCO's.
Korean contractors expected to win record overseas orders of $35 bil this year to build power plants and refineries, up 38% on year, helped by surging demand from the Middle East. Orders totaled $28.3 bil in the first 9 months, compared to the $25.4 bil for the same period a year earlier. A consortium of Korean and Malaysian firms signed an official contract with the Congolese government for the $3 bil project to build nationwide railway network in Congo, in exchange for securing permission to tap the country's oil and other natural resources. The group plans to construct 1,500 km of railways, and renovate the existing 500 km line in the African state. It will also run the railroads over the next 3 decades. The group will finance the construction of the railways with the income stream from its timber business in Congo. The group will also start exploring 3 offshore and 2 onshore oil reserves in Congo. Shinhan Construction won 2 projects in Lybia, such as the establishment of urban infra structure in Zilitun City worth $500 mil, and the construction of housing for 5000 families in the same area for about $500 mil.
A Seoul court approved the consortium led by Prime Develop to buy the bankrupted Dong Ah Construction for KW678 bil ($740 mil). The state-run agency had injected KW251 bil of public funds into the builder, that collapsed in the aftermath of the 1997-98 Asian financial crisis. In its heyday during Korea's overseas construction boom, Dong Ah was one of the leading companies in the world construction market. In 1983, it clinched a $32.9 bil contract to build a water pipeline in Lybia, then the largest ever construction project in the world.
Global software giant Microsoft Corp has dropped an appeal against Korea's Fair Trade Commission, after it lost a similar antitrust case in Europe. The company had been fighting in a local court against the watchdog's order to make available a version of Windows stripped of its instant messenger and media player programs and a fine of KW33 bil ($35 mil). Microsoft locked in antitrust disputes in USA, Europe and other countries with only a slim chance of winning. FTC has claimed that the US firm was abusing its market dominance when it bundled its MSN Messenger and Media Player programs with its popular operating system. Windows accounts for 95% of personal computer operating systems in Korea.
Eurocopter, the world's largest helicopter maker, decided to set up a joint venture with Korea Aerospace Industries to supply commercial and military helicopters to the global market. They will jointly develop and manufacture new military helicopters from 2012. They estimated that around 300 units will be sold overseas. DHL broke ground for its new nerve center at Incheon International Airport. The DHL Express Incheon Hub will serve as a consolidation and distribution center for Korea and Mongolia, Guam, Saipan, and Far East Russia, after investing almost $50 mil and brings DHL's total investment in Korea to more than $100 mil since 2001. Backed by a strong inter-continental and regional air network, Incheon International Airport has seen a steady increase in air cargo and projects a two-fold increase in its handling capability from 2.5 million tons in 2005 to 4.5 million tons by 2010. Orhan International of Turkey invested $65 mil to establish a joint venture with a local car parts manufacturer in Sangju of Kyoungbug Province.
The Korean Fair Trade Commission has cleared Doosan Infracore's proposed $4.9 bil purchase of Bobcat, the world's leading compact machinery maker based in USA. Doosan is still waiting for permission from regulators in 3 more countries. The purchase of Bobcat, which would mark the largest-ever foreign acquisition by a Korean firm, will make Doosan the world's seventh-largest construction equipment producer. KT Corp, Korea's largest fixed-line and internet service operator, has secured a 51% stake in Uzbek fixed-line operator East Telecom and a 60% stake in WiMAX provider Super-iMAX. Utilizing the networks and facilities of 2 firms, KT is looking to roll out a range of internet-based businesses in the country, including portal sites, internet protocol TV services and internet data centers.
MONETARY AND ECONOMIC INDICES
Korea Composite Stock Price Index experienced another roller coaster even with 3-5% rise and fall in a day. It started at 1962, soared to 2058 the new record with about 40 firms¡¯ posting new high, then dived to 1902 linked to subprime loan defaults in USA and surged again to a new high 2,064 by rising expectations for a rate cut by the USFR. Foreigners¡¯ net-sold reached $16.59 bil in Korean equities in the first 9 months of this year, sustaining their selling spree of local share, compared with their net-buying of $45.81 bil in Japanese equities, $13.03 bil in India, and $4.31 bil in Taiwan. KWon exchange rate kept strengthened, in the range of 915-919-907-900 against USDollar. KWon plummeted to 900 for the first time since Aug 1997 on the news the US Federal Reserve cut interest rates. KWon has surged 33% since the start of 2004, the best performer among Asian currencies, making Korean exports less competitive. SEC estimates that every 1 KWon gain versus USD can wipe out $20 mil of earnings. As of the end of Oct, the country's foreign exchange reserves amounted to $260.14 bil, up $2.84 bil from Sept. BOK left the benchmark interest rate unchanged at 5% for the second consecutive month, as a rate hike might hamper Korea's exports by making the KWon stronger. Korea¡¯s two-year government bonds yield 1.64% more than similar-maturity US notes, the widest in more than 3 years. Despite the central bank's 2 interest rate hikes in July and Aug, the liquidity aggregate surged 12.4% to KW1,972 tril ($2.15 tril) on year. Aug¡¯s increase of KW20.9 tril is more than 10 times the July figure of KW1.7 tril. Korea¡¯s consumer prices rose a higher-than-expected 3% in Oct on year from a 2.3% increase in Sept, due to an increase in oil and raw material prices. Korean banks¡¯ average lending rate for households and companies reached 6.7% in Sept, up 0.14% on month. The yield on 3 years corporate bond was stabilized in the box of 5.95-6.05-5.91-6.06%. Korea¡¯s jobless rate fell to 3.08% in Sept from 3.1% in Aug, amid the country¡¯s continuing economic recovery.
SHIPBUILDING AND SHIPPING
Despite the widely agreed concerns on hard landing of dry bulk market in coming year, the prices of bulk carriers show no way to be softening. The price of Panamax bulker is fast approaching $100m mark, after 77K bulker built in 2007 was sold at $98m. Hanjin Tampa and its sister of 27K, 95¡¯ built was reportedly sold at $40m. How long does this good day last? When does the supply and demand reach the tipping point. How long does it take for China to squander all the natural resource in the world. What will be happening when China starts to control their boundless expansion policy. Every one agrees this unrealistic market will not last long, but no one is willing to take off his hands from the lingering attachment to the rosy fantasy before it crashed. Some Korean analysts started to express concerns about the reckless expansion of shipbuilding industry in Korea by increasing number of new comers, warning 3 evils, such as over supply of tonnage, the shortage of manpower and the difficulties to secure proper material, to face in near future. The stock market values of shipbuilders and steelmakers have skyrocketed this year. POSCO jumped from third to second place in the rankings this year, trailing only SEC, with the record of KW57.4 tril ($63.2 bil) in aggregate value on Oct 26, double KW26.6 tril seen on Jan 2. HHI saw its market capitalization swell nearly 4 fold to KW36.2 tril, pushing itself to third place from No 17. SHI's capitalized value doubled to KW11.3 tril, bringing it to No 20 from its previous ranking of No 32. Expansion of Korean shipbuilding industry continued. HHI is to invest a further $280 mil for the construction of a new engine plant near the existing site in Ulsan for the completion by Dec 2010. It is also splashing out another KW150 bil on a new ship-block plant in Gunsan, slated to complete in April 2008. DSME is considering building a $150m block plant in NK with production to start in 2009.
HHI secured orders from J Lauritzen for 2 x 180K bulker and TMT 9 x 320K VLOC, Hyundai Samho from Danaos for 5 x 12,600 teu post-panamax container ships and HMD with ST Shipping for 4 x 46K pc. SHI has opened 16,000 teu era by further developing the design for enlarged container ship, which has the wheel house in the midship to optimize the efficiency of loading and enhance the structural strength. SHI got the order from Flex LNG for 1+1 x 90K SPB-type LNG/P "on station producing LNG" and Yasa 1 x 158 tanker.
DSME agreed with Brave Maritime to build 1 x 180K bulker and Knutsen 1 x 170K LNG. Daewoo Mangalia adjusted its annual goal to $3 bil of orders in 2007. By taking orders for 21 ships worth $1.92 bil so far this year, including recent order of 9 x 5550 teu class container ships from a European owner, the value of orders past the $2 bil mark. It holds talks with several other owners in Germany, Turkey, Greece and USA. The company¡¯s initial annual target was $1.5 bil.
STX signed the contracts with Almi Marine for 2 x 57.5K supramax bulkers, 2 x 181K bulker, Great Eastern 2 x 80.7K, Kaptanoglu shipping 2 x kamsarmax bulkers, Essar Shipping 6 x 98K, Formosa Plastics 3 x 98K, Ince Denizcilik 2 x 98K mini-capesize bulkers,. STX received an order from Technip France for under water pipe layer ship, able to work at 2500 m under water, for $200 mil, entering offshore plant industry for the first time. STX Shipbuilding had acquired a 39.2% stake in Aker Yards for about $800 mil. It intended to remain a ¡°significant minority shareholder¡± in Aker Yards, which operates 18 shipyards across the world in Brazil, Finland, France, Germany, Norway, Romania, Vietnam and the Ukraine, with operating revenues last year of EUR3.2 bil ($4.5 bil) and an order backlog of close to EUR6 bil. STX seems to aim an access to the high technologies for LNG carriers, cruise liner and ice breakers which Aker share with its affliated yards.
SPP got the orders from Akmar for 2 x 59K, Bayraktar Shipping 2 x 59K, Turkish Cargo Lines 4 x 59K bulkers and Premuda 2 x 35K geared bulkers. Daehan had an order from Keoyang Shipping for 2 x 170K bulkers for its new dock. C&Heavy Industries had a brisk sales activity to conclude the orders with Siba Ships for 2+4 x 81K C& Shipping 1 x 81K and Seven Mountain Shipping 1 x 81K Kamsarmax bulker. Orient got Bongshin for 3 x 33K bulker, Sekwang from Sea Tramp for 2 x 17K Chemical, Ilheung from Sungwoo for 2 x 13K PC.
UBS has bought 5.5% stake in STX Pan Ocean, spending about $270m for investment purposes. STX PO declared option for 1 x handy size bulker, for the delivery of 2010 from Taizhou Maple Leaf Shipbuilding, following its order for 3 ships in May. STX Pan Ocean (UK) plans to conclude a contract for 2 x 98K post-panamax vessels by the next month after it called for a tender in the Financial Times. The tender closed on 24 Oct, for the delivery before the middle of 2011. It had published the notice of tender in the UK press, as STX Pan Ocean (UK) is seeking to establish a British identity.