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  Korea Report - December 2007
  Author : Hwang & Co     Date : 08-01-07 21:04     Hit : 19479    
Topics.
-Rag-to-riches Lee Myung-bak won landslide victory in presidential election.
-The worst ever oil spill damaged clean water in West Sea.
-Roh governments press reform measures escalates the conflicts with journalists.
-Kim Yuna captured second consecutive Grand Prix in International Female Figure Skating Championship.
-First freight train starts operation between South and North Korea,
-NK failed to declare the nuclear program within Dec 31 deadline.
-NY Phil to perform in NK in Feb.
-Korean economy to be sluggish with the hike of oil prices in 2008.
-KSE to ease the rules to lure foreign investment.
-Iraqi government threatened to cut oil supply to stop the contract with Kurdish local government.
-CEO-turned-president vowed market friendly policies.
-Independent prosecutors started the probe into alleged corruption in Samsung Group.
-Korean builders secured record orders in global construction market.
-Consumer price rose to 3.6% the highest in 3 years.
-Outlook on Korean Shipbuilding in 2008

GOVERNMENT AND SOCIETY

Lee Myung-bak, 66, the candidate of Grand National Party, scored a landslide win with 48.7% vote in presidential election on Dec 19, defeating his rival Chung Dong-young of the Liberal United New Democratic Party who garnered 26.1%. It was the widest margin of victory in the nation's presidential election. Lee is the first conservative to take power after former president Kim Young-sam stepped down in 1997. His term, which starts in Feb 2008, lasts for 5 years.
Lee Myung-bak's life is a typical rags-to-riches story. His family could not afford to send him to high school, but he had excellent grades, enabling him to attend an evening high school after winning a scholarship. When he entered Korea University in 1960, Lee got a job sweeping the streets of Itaewon to pay for his tuition and board. In 1977, Lee MB began his corporate career at Hyundai Engineering and Construction, and became the company's youngest CEO at the age of 35. His jobs at Hyundai included major construction projects for building landmark projects in Korean industrial history. Lee entered politics in 1992 to join the now defunct conservative Democratic Liberal Party, becoming a legislator. He also served as mayor of Seoul City from 2002.
He promises 7% economic growth, compared with the average 4.4 % yearly economic growth during 2002-2007 under the Roh government, by stimulating domestic and foreign investment with deregulation and tax cuts, among other measures. The plan is part of Lee's flagship "747 pledge" which also promises to provide Koreans with per capita income of $40,000 per year and make the country the seventh-largest economy in the world within 10 years. Korea's per capita income was $18,372 in 2006 and it is now the world's 12th-biggest economy.
President-elect Lee is expected to ease regulations that restrict industrial conglomerates from controlling banks. Under current regulations, non-financial firms are not allowed to hold more than a 4% stake in a bank. Even in case they give up voting rights, they can only possess up to 10% of a bank's shares, aiming to prohibit chaebols from using banks as their private coffers. Lee has asserted that the regulations should be eased because they discriminate against local investors by blocking bank ownership while foreign investors are free to buy large stakes in domestic banks.
Lee is also expected to push for the privatization of public corporations, which will invigorate the nation's M&A market. He vowed to privatize government-invested corporations which have lost their legitimacy or are in a competitive relationship with private companies. Privatization of these companies would raise KW30 tril ($31.8 bil) that can be used to support small- and medium-sized enterprises. The major targets are the Korea Development Bank, Korea Electric Power Corp, Korea Gas Corp and the Korea District Heating Corp. The list also includes Hynix Semiconductor, Daewoo Shipbuilding, Daewoo Securities, Daewoo International, Hyundai Construction and Ssangyong Engineering & Construction, in which the government holds major stakes after having injected taxpayers' money during the 1997-98 foreign-exchange crisis.
Lee's first message as president-elect was that relations between SKorea and USA will be reshaped after he takes office in Feb. Lee puts priority on the strong alliance with USA as the basic principle of his foreign policy. Lee pledged closer cooperation with ASEAN, Australia and New Zealand, along with the cultivation of relations with Central Asian nations. A big challenge for President-elect Lee will be dealing with NKorea. Virtually all Korean leaders recognize the need to engage NK in some way, while the public has grown weary of unconditional engagement. It is high time that Seoul rediscovers its voice to require better monitoring of humanitarian aid, raising human rights concerns, and insisting on better behavior for receiving economic aid. Lee also stressed the importance of strengthening economic ties with Japan. On FTA policies, he has pledged to seek an early conclusion of the trade talks with EU, and to examine the ratification plans for an accord with Japan, China and Russia. The new Korean government will likely prioritize Japan over China in sealing a FTA deal.
President-elect Lee appointed Lee Kyung-sook, 64, president of Sookmyung Women's University and a well-known university reformer, to lead his transition committee before his Feb 25 inauguration. Lee has been persistent about filling his committee with mostly experts and nonpoliticians, in order to gain professional expertise on formulating national agenda and reshaping government organizations. Lee named a prominent foreign financier to his transition committee. David Eldon, the former chairman of HSBC Group and the nonexecutive chairman of the Dubai International Financial Center Authority, will co-head the special committee aimed at enhancing national competitiveness. Lee also named William A. Ryback, a veteran of the US Federal Reserve, as an economic adviser. Ryback served as deputy chief executive at the Hong Kong Monetary Authority during 2003-2007.
Regarding the dispute over Lee possible link to a financial scam took a new twist. State prosecutors on Dec 5 cleared Lee of any involvement with BBK, which was run by his former business partner, Kim Kyung-joon. BBK created a massive financial scandal which have affected over 5,000 investors, and incurred losses of over KW60 bil ($65 mil). The National Assembly passed a bill calling for an independent investigation for a second investigation into Lee MB's alleged financial wrongdoings into presidential frontrunner Lee Myung-bak just 2 days before the election. President Roh endorsed the investigation, while Lee flatly denied his links with the now defunct BBK. The investigation is expected to be concluded before Feb 25 when a new president takes office. By law, an incumbent president cannot face prosecution unless he commits crimes that threaten national security. But there is no such protection for a president-elect.
 
The worst-ever oil spill from a tanker in the country's West Sea on Dec 8 has seriously damaged the region's marine farms and beaches. The accident occurred after a Samsungs crane-carrying barge broke free of its tugboats and slammed into the Hebei Sprit, puncturing 5 holes into the tanker. The tanker was waiting for the entering to Daesan port holding the crude oil for Hyundai Oilbank. A Hong Kong-registered tanker leaked an estimated 10,500 tons of crude oil into the waters after its collision in 90 km southwest of Seoul.
6 townships, such as Taean, Seosan, Boryung, Seocheon, Hongsung and Dangjin on the western coast of South Chungcheong Province, were declared special disaster zones, which are eligible for government subsidies, while individuals who have lost over 30% of their property within the zones can get tax breaks. Some 5,000 hectares of marine farms and fisheries in Taean and Seosan area were damaged after the oil spill struck 168 km of its coastline.
Coast guards in 5 helicopters and 139 vessels desperately set up oil fences to keep the slick from spreading further. Some 600,000 volunteers have taken part in cleaning efforts. The government has offered up to KW300 bil ($325 mil) in emergency funds to support small businesses and marine farmers. Disaster control experts from around the world are flocking to Taean to assist in the cleanup. Japan dispatched 6 maritime disaster prevention specialists, following 4 from UN and another 4 from EU. 3 marine rangers from the US Coast Guard and a researcher from the US National Oceanic and Atmospheric Administration, with experience from the world's largest-ever oil spill in Alaska in 1989. A Spanish team of 4 marine and ecological experts who took care of the oil spill in northern Spain in 2002 also visited Taean to provide know-how.
Local maritime police indicated that the tanker responsible for Korea's largest-ever oil spill did not take enough precautions to avoid the collision with a crane-carrying barge, failed to take necessary actions while the tugboats tried to move away from it in the bad weather. The tanker is owned by China's Hebei Ocean Shipping and managed by the British firm V.Ships.

The conflict between Roh government and journalists is escalating as the Defense Ministry and the National Police Agency began to consolidate press facilities in their headquarters. The ministry and agency unilaterally cut off internet access to the media room at its main building, where about 30 journalists from 23 media outlets work, in accord with the Roh administration's "press reform" measures. They further resorted to tougher measures, including cutting off the electricity and heating in the place, and warned that it will remove all furniture and other items, in order to close down the room. The government aims to discard the correspondent system, and consolidate all briefing rooms at major government organizations at a central location.
The correspondents adamantly condemned the measures as a suppression of the media and boycotted all briefings. Wearing parkas to combat the freezing cold and using candles to counter the darkness, a group of 10 Korean reporters continued their sleepless fight against outgoing President Roh's move to shut down the press room.
 
The European Parliament adopted a resolution demanding that Japan apologizes to and compensates women it mobilized as sex slaves before and during World War II. The resolution marked the fourth time that foreign countries have held Japan accountable for the "comfort women" and pressed for an official apology. A similar resolution passed the US House in July, and the Netherlands and Canadian lower houses in Nov. Comfort women is a euphemism for hundreds of thousands of young girls, many of them kidnapped or lured by the Japanese, placed in frontline brothels to provide sex to Japanese soldiers.
 
Korean female figure skater Kim Yu-na captured her second consecutive Grand Prix final title in Turin, Italy, beating her Japanese rival, Mao Asada. The 17-year-old high school student won a gold medal in the International Skating Union Grand Prix in Paris last year, the first such feat in the 100 years of Korean figure skating history.
 
NORTH KOREA AND NATIONAL DEFENSE

A regular freight train service between 2 Koreas began for the first time in 56 years, to transport raw materials and goods for the inter-Korean joint industrial park in Gaeseong, NK's border town, for a number of its labor-intensive plants. Currently, over 2 dozen SKorean businesses are operating in the Kaesong complex, producing over $19 mil worth of goods a month. A train will run daily on weekdays once the Koreas build a logistics center there. The service is one of the first major projects to be implemented since President Roh and NKorean leader Kim agreed to various economic cooperation and reconciliatory projects at their summit in early Oct. A 10-carriage train can ship up to 10,000 tons of cargo on each run. SKorea's long-term plans include connecting the cross-border railway to the Trans-China and Trans-Siberian railways.

The South and North Korean militaries failed again to narrow their differences over the plans to create a joint fishing zone in the conflict-laden western waters. Delegates from 2 sides wrapped up the 3 day general-level military talks, with no progress on the issue. The leaders of 2 Koreas agreed in Oct summit to establish joint fishing zones in the West Sea to prevent recurrences of armed disputes. The North proposed 4 areas south of the Northern Limit Line, de facto sea boundary in the West Sea. NK has refused to recognize NLL and insisted the inter-Korean sea border will be placed far south of the NLL following the 12-nautical-mile doctrine, insisting that the joint fishing zone should be created between the NLL and the sea border claimed by NK. The South, however, maintained that equal areas to the north and south on the NLL be designated as the common fishing zone.

With the unprecedented gesture, US President George W. Bush wrote a cordial letter to NK's Kim Jong-il, promising to normalize ties, in return for nuclear dismantlement. In addition, Bush reportedly called China's President Hu Jintao to urge Beijing to take a more direct role in persuading NK to accurately and completely draw up its declaration list. In compliance with the Oct 9 agreement at 6-party talks, NK has to be disabling its 3 nuclear facilities in Yongbyon, and declare its nuclear programs by Dec 31.
US Secretary of State urged Pyongyang to take sincere steps, expecting a declaration from NK that is complete and that is accurate. The message came after scientists found traces of enriched uranium on smelted aluminum tubing provided to USA by NK, in an attempt by NK to quell suspicions regarding a clandestine uranium-enrichment program. NK only admits to developing nuclear weapons through a more accessible method of reprocessing plutonium. Washington has been suspecting NK of importing aluminum tubes from Russia to build centrifuges for running the UEP.
NK missed a deadline. Pyongyang has met one part of the deal by starting to take apart its nuclear facility that produces mars-grade plutonium, but failed to meet its obligation to fully account for its nuclear activities by the end of the year. SKorea, USA and Japan have expressed regret concerning NK's failure to meet a year-end deadline. Seoul said that, while the North did not meet the disclosure deadline, there has been real progress in disablement of the 5-megawatt reactor, a reprocessing plant and a fuel fabrication facility at Yongbyon.

The Korean military launched a task force that will proceed with the plan to transfer wartime operational control of Korean troops from USA to Korea. Korea and USA signed an action plan in June for implementing the transition scheduled for April 2012. By 2009, 2 countries will repeal the allies' combined war scenario, and draw up a new war plan designed for independent operation of 2 militaries. After the initial implementation, the allies will conduct 5 joint military exercises between 2010-2012 to adapt themselves to the new alliance structure. Seoul voluntarily put operational control of its military under the US-led UN Command after the Korean War broke out in 1950. It regained peacetime operational control of its forces in 1994, and is due to regain wartime operational control as of 10 a.m. on April 17, 2012.
 
In Oct, President Roh announced that Korea will extend its troop mission in northern Iraq for another year, while halving the 1,200-strong force. The opposition, GNP, expressed its support for the decision, while the ruling UNDP and the DLP have clarified their opposition to the extension. The government suggested that another extension of the mandate is unavoidable, in order to strengthen ties with USA. The National Assembly endorsed the motion by a narrow majority. Korea has maintained the Zaytun unit in the northern Iraqi city of Irbil since 2003 at the request of USA. The unit has participated in the post-war stabilizing mission in the region.
Korea completed the planned withdrawal of its 195-strong military contingent from Afghanistan, wrapping up the 6-year mission there. Korea has maintained a force in the embattled country since 2002 at the request of USA. The 60 medics have provided humanitarian and medical aid to local residents, while 150 engineers supported construction work in the region, and provided technical education to Afghans.

The New York Philharmonic formally announced to perform in NK on Feb 26 at the East Pyongyang Grand Theater. The scores will include George Gershwin's "An American in Paris," Antonin Dvorak's Symphony No 9, known as "From the New World," and the NKorean and US national anthems. The Orchestra went to China in 1973 on the heels of then US President Richard Nixon's trip to Beijing. In 1956, the Boston Symphony became the first American orchestra to perform in the Soviet Union.

ECONOMY AND POLICY

BOK predicted Korea's economy to expand 4.7% in 2008 from an estimated 4.8% in 2007, as a global slowdown reduces demand for the nation's cars, ship and mobile phones. The 48% increase in the price of oil this year can be a risk for the economy. At the same time, prices are falling for information and communications products, the value of which represents about 40% of SKorea's total shipments.
Korea's economy grew 5.2% in the third quarter on year, the fastest annual pace in almost 2 years. The nation's estimated $6.5 bil current account surplus in 2007 is likely to turn to a deficit of $3 bil in 2008 on soaring crude oil prices.
 
Korean exports expanded less than expected in Dec, as a slowdown in demand from USA and Japan tempered rising sales to China and the Middle East. Overseas shipments advanced 15.5% to $33.2 bil on year, lower than the estimated 20.2%, following a 17.1% increase in Nov. Imports climbed 24% to $34.1 bil in Dec, posting a monthly trade deficit of $865 mil, as the first shortfall in 5 years. Korean exports soared and consumer demand picked up speed in 2007 against high energy and raw material prices and uncertainties surrounding US sub-prime mortgage loans. The double digit growth could push up exports to $367 bil by years end from $325 bil in 2006.
The country's current account surplus for Nov fell by $710 mil from Oct to come in at $1.75 bil, attributing to rising international oil prices and a sharp decline in the trade surplus. The price of Dubai crude oil has reached a record-high of $90.1 per barrel in 2007. Nov was the seventh consecutive month the country posted a surplus and the cumulative current accounts surplus for the first 11 months of the year came in at $7.02 bil. The Nov country's service accounts deficit increased by $40 mil from the $1.42 bil in Oct despite a fall in the tourism deficit.
Korea is the world's sixth-largest exporter of IT products and services. Korea and China were the only countries that increased their share of the global IT market during the past 9 years, despite the bursting of the global-tech bubble in 2000. Korea exported $87.9 bil worth of IT products and services in 2005, taking a 6.1% share of the global IT market. The EU led the list of leaders, with a 27.7% share, followed by China, with a 14.8% share, and USA at 11.8%. Japan and Singapore took 10% and 7.8% respectively.
 
Iran has completely stopped selling any of its oil for US dollars, reducing its exposure to the dollar for nearly 2 years.
The Federal Reserve lowered its benchmark interest rate by a quarter point to 4.25%, the lowest level since Jan 2006, while signaling to further cuts if the housing slump and credit squeeze worsen.
Inflation in the 13 EU nations that use the euro surged to 3.1% in Nov on year, its highest level in more than 6 years.

Woori Investment and Securities signed a partnership deal with the Korea Commercialization Investment Corp to work toward listing local small- and medium-sized companies on the London Stock Exchange's secondary market. KCIC is the first firm focused on helping Korean SMEs float on the Alternative Investment Market in Britain. The KCIC went public on the AIM this month, intending to attract an investment of 50 mil pounds ($103 mil) from nations worldwide, including Korea, Hong Kong, Singapore, UAE and UK. The country's leading brokerage house will help the KCIC lure investments from Korean individual and institutional investors.
 
The Export-Import Bank of Korea signed an agreement with Turkish lender Yapi Kredi Bank to provide with $50 mil in trade credits, in order for Korean companies there to raise their funds through the Turkish bank. KOEXIM bank also inked a contract with Prominvestbank in Ukraine to provide $30 mil in trade credits for the same purposes. KOEXIM Bank opened an office in Tashkent in Uzbekistan with cooperative networks with the local financial institutions, to help Korean companies expand operations in Central Asia. The bank also signed a $30 mil inter-bank export credit deal with National Bank of Uzbekistan and a similar $40 mil deal with the second-largest Asaka Bank. In Central Asia, KOEXIM Bank has concluded a total of $300 mil worth export credit deals with 11 banks in 3 countries, supporting exports from Korea into the region.
Hana Bank has bought a 61% stake in Indonesia's PT Bank Bintang Manunggal. Through the acquisition, Hana Bank raised the Indonesian bank's capital base to $15 mil, renaming the Indonesian bank PT Bank Hana. Hana Bank opened a new office in Vietnam and established a subsidiary in China in Nov, planning to open another office in New Delhi in the near future.
 
Korea's Stock Exchange will ease rules for initial public offerings in a bid to attract more foreign listings and streamline the process. KSE will allow consolidated financial statements that comply with USA or international accounting standards in IPO applications from 2008. KSE will no longer require the reserve ratio, or the percentage of retained earnings to paid-in capital, to be 50% or more.
The Financial Supervisory Commission is to ease regulations on the trading of securities by foreigners to improve the investment climate. Foreign investors will be allowed to trade local stocks over the counter more freely and to deal stocks listed on Seoul and overseas markets through a foreign exchange.
Despite a record high selling spree by foreign investors, the top 5 foreign funds increased their stakes in Korean companies listed on KSE. The number of Korean companies in which foreign funds held a 5% stake or greater increased to 87 as of Dec 28, from 79 a year ago. Their market capitalization reached KW13.65 tril ($14.5 bil).

Iraqi government threatened foreign firms to cut the oil supply, unless they cancel an oil development contract with the autonomous Kurdish government. The central government of Iraq strongly opposes a recent move by the Kurdish people to tap the region's crude oil reserve jointly with foreign companies. A Korean consortium led by Korea National Oil Corp won a deal to explore the oil reserve in Bazian from Kurdish local government in Nov, holding a 38% stake in the plan. Korea imports over 5% of its total petroleum consumption from Iraq, amounting to 37 million barrels a year.

The country's annual bill for imported mineral resources, petroleum and petroleum-derived products is expected to exceed $100 bil for the first time this year. The import during the first 10 months of the year were valued at $85.7 bil, up 6.5% on year, and less than $12 bil short of last year's total of $97.3 bil. The country's crude oil imports rose by a relatively low margin of 0.8% to $47.2 bil, despite soaring crude oil prices. The monthly average price of Dubai crude oil, the country's benchmark crude, rose from $54 per barrel in Jan to $75 per barrel in Oct. The ministry attributed the less than expected increase to the 1.5% fall in the volume of crude oil import during the period. The LNG import also rose by a below-average rate of 2.3%.
The Korean government plans to inject KW245.4 bil ($261.6 mil) into atomic energy R&D projects in 2008. The money will be used to develop key technologies related to nuclear energy generation, medical research and joint international efforts including the International Thermonuclear Experimental Reactor.

CHAEBOL

The election of the CEO-turned-president has raised hopes in the business community that the president-elect Lee would promote market-friendly policies. Lee met with about 20 heads of chaebols and promised deregulation and other measures aimed at encouraging investment expansion. The country's big businesses hold ample cash reserves as they have shunned facility investment recently, complaining heavy restrictions and economic uncertainty. They have requested to improve the country's labor flexibility and find a solution to the often-messy labor strikes, before investment. Lee has vowed to ease business regulations and implement sizable tax cuts in a bid to spur economic growth. Lee has also pledged to ease the decades-old rules that restrict industrial groups from controlling banks. The current law bans "industrial capital" to own more than a 4% stake in banks, preventing financial misconduct by the powerful conglomerates. He argues that the regulation makes local banks vulnerable to hostile takeovers by foreign corporations since few domestic financial institutions have enough money to buy large financial groups. Lee also pledged to scrap restrictions on cross-affiliate investment among large business groups, saying that the law undermines business sentiment of investment.
 
The year 2007 is set to be a record year for merger and acquisition activity in Korea, with the total volume of deals having reached a record $69.1 bil so far. The Korean M&A market grew 62% on year, and has already toppled the full 2006 volume of $43.6 bil. Cross-border M&A activity is also at a record high $23.7 bil. Deals in which Korean companies bought totaled $13.7 bil, and foreign firms' purchase of local companies is also at a record level of almost $10 bil. SK Corp's spin-off of its petrochemical business worth almost $17 bil propelled the energy and power sector to become the most favored industry in Koreas M&A activity. A total of 40 companies in this sector were bought out, reaching $22.4 bil in value. SK Corp's petrochemical business is handed over to a new entity, SK Energy. HSBC landed the second-largest deal when it agreed to buy a 51% of KEB from Lone Star Funds for $6.5 bil. The deal is the largest takeover of a Korean firm by a foreign buyer, but yet to be approved by authorities. SK Telecom's plan to make a $5 bil stake investment in Sprint Nextel of USA, would rank No 3 in terms of the value, should it go ahead. Doosan Infracore's $4.9 bil buy of Bobcat and 2 other units of US based Ingersoll Rand is the fourth-ever takeover and is the largest deal in which a local company purchased a foreign firm.

Samsung Electronics (SEC) has teamed up with Japan's Toshiba to mutually license specifications and trademarks of their premium-performance flash memory chips, giving each other the rights to produce, market and sell memory with the specifications and trademarks of Samsung's OneNAND and Toshiba's LBA-NAND memory chips. OneNAND provides a sustained data "read" speed of 108 Mb-per-second, which is 4 times faster than conventional NAND flash memory, and a "write" speed of 10 Mb per second, which is more than 46 times faster.
SEC will unveil the world's largest television based on an organic-display technology. Samsung has developed TVs with a 31-inch AMOLED panel and plans to showcase the prototype at the International Consumer Electronics Show to be held in Las Vegas from Jan 7-10. The company completed the development of a 40-inch AMOLED display panel in May 2005, but has not yet brought forward a TV with the screen.
 
Wrapping up a four-day data hunt at Samsung Securities, prosecutors have banned 10 more Samsungs executives from leaving the country, putting the total to over 20.
Kim Yong-chul, a former legal counsel to Samsung Group submitted a list of more than 20 executives allegedly involved in the slush funds, claiming that Samsung used the slush funds to bribe high-profile social figures and to illicitly transfer managerial rights to Samsung chairman Lee Kun-hee's son. The state prosecutors have traced some 120 accounts which were allegedly used to hide the secret funds that were used to bribe prosecutors, politicians and members of the media. Kim claimed there were some 1,500 illegal accounts set up by Samsung to channel trillions of won in slush funds.
The Cabinet approved a parliamentary proposal for an independent probe into corruption allegations against Samsung Group. President Roh appointed a head counsel from among the 3 candidates nominated by the Korean Bar Association. The head counsel has 20 days to prepare initial stages, such as finding an office and organizing a staff of 6 prosecutors, up to 40 special investigators and 50 public officers. The actual investigation began late Dec and will last for a maximum of 105 days.
Samsung Group has been the nation's premier business, producing 15% of Korea's GDP and accounting for 20% of Koreas total exports. Many problems with Samsung Group stem from the Lee family's maintenance of corporate control, even with a relatively small amount of shares. It has been only possible due to the extremely complicated circular investment among subsidiaries. In order to maintain this ownership structure, Samsung must rely on financial practices which are increasingly incompatible with global standards. Samsung Group is likely to postpone all major business decisions due to a snowballing corruption scandal. It has delayed the decision of major investments and the annual reshuffling of senior executives which had been scheduled at the beginning of the New Year.
 
SK Telecom, Koreas top mobile carrier, has signed a deal to take over a 38.89% stake Hanarotelecom, the second largest fixed-line telephone and internet operator, for KW1.08 tril ($1.17 bil), to provide diverse communications to its customers and cope with fast-changing market conditions.
SK Energy expects to secure its stake more than 25% in Sinopecs NCC plant of annual 800,000 ton production capacity, constructing in Wuhan, for around KW470 bil.
KTF, Korea's second-largest mobile carrier, and its Japanese business partner, NTT DoCoMo, has signed a deal to invest a combined US$200 mil to purchase a 33% stake in Malaysian U Mobile, a move to enter the third-generation (3G) market of the southeast Asian country. U Mobile is one of 4 local firms which were given a license to run the 3G mobile service in the country.

LG Electronics (LGE) has sold over 15 million units of its Chocolate handset in about 100 countries around the world since it was first released 2 years ago. The strong sale of the Chocolate brand, which has an average price of $200, is expected to further grow to 20 million units by mid-2008.
LG Chem, Koreas largest chemicals maker, has won an order to exclusively supply rechargeable hybrid car batteries to HMC. LG Chem will supply lithium-ion polymer batteries to HMC which will mass-produce hybrid vehicles in 2009.
 
HMC has signed an investment agreement with the Russian city of St Petersburg to build an auto plant there, as its first production facility in Russia. Construction is to cost $400 mil with an annual production capacity of 100,000 units.
HMC's key technology used in the company's sports utility vehicles has been leaked to a Chinese company. 2 employees of HMC have been arrested on charges of selling auto manufacturing technology to a Chinese manufacturer for $1.2 mil in late 2005. In May, 9 former and current employees of Kia Motors were nabbed for stealing and selling core automobile technologies to Chinese firms.
Hyundai Steel will be receiving technical support from the German steelmaker ThyssenKrupp Steel AG in operating its plant and training employees from 2008. Hyundai Steel, a subsidiary of Hyundai Kia Automotive Group, produced 8.9 million tons a year and was ranked as the world's 31st largest steelmaker. 250 Hyundai Steel engineers will receive training at ThyssenKrupp's Germany-based facilities a year, during March 2008 - May 2010. The German steelmaker will also place around its 40 employees at Hyundai's Dangjin steelworks to serve in advisory roles in 2009-2011.
 
Hynix Semiconductor, the world's No 2 memory-chip maker, will start mass-production of NAND flash chips in Jan, using the 48-nanometer process technology. It should also give the firm a manufacturing edge over rivals SEC and Toshiba, which are not expected to move into the 48-nano level until the second quarter of 2008. Hynix Semiconductor has decided to issue $583.4 bil worth of convertible bonds in overseas markets to raise money needed for expanding its production capacity.

Korean builders have secured orders worth a US$36.8 bil from 75 countries by Nov, up 228% on year. They expect overseas orders to reach about $38 bil for the full year, mainly attributing to skyrocketing oil prices that sparked off a boom in industrial plant construction in the Middle East.
Doosan Heavy Industries & Construction (DHIC), Korea's top power equipment maker, received a $100 mil order from Eraring Energy in New South Wale of Australia to supply the major facilities including turbine and generators to improve the performance of Eraring Coal Firing Power Plant, as its first contract from the Australian market. It will complete the project in Dec 2009 for first unit with 6 months interval for following 3 units.
DHIC won an Engineering, Procurement and Construction Contract for 2 units of eco friendly 100MW class coal fired power plants in Cebu Philippine, from KEPHILCO. The plant is designed to minimize the pollution by using Circulating Fludized-Bed Boiler technologies and will be completed by Feb/May/2011.
DHIC won a $267.5 mil order from Libya's state electricity company. Construction of the plant will be completed by Dec 2011. Doosan has received $5.3 bil in overseas orders this year, almost 6 times more than a year earlier.
Koreas No 3 builder Hyundai Engineering & Construction has received a $920 mil order from Qatar Fertilizer to build 3 fertilizer plants in southeastern Qatar. It will take 40 months to complete the plants.
Daelim Industrial has won a $960 mil contract to build a petrochemical plant in Saudi Arabia. Daelim will build a polyethylene production facility in Al-Jubail for Saudi Polymers by April 2011. The plant is estimated to have an annual output capacity of 550,000 tons of high density polyethylene and linear density low polyethylene, respectively. It will also be able to produce up to 400,000 tons of polypropylene and 200,000 tons of polystyrene.
 
Daeju Group, the largest shareholder of Koreas nonlife insurer Daehan Fire & Marine Insurance, has decided to sell a 57% stake to Lotte Group at the estimated price of KW370 bil ($401.7 mil). Dongwon Group decided to acquire Aju Logistics for KW10 bil, after buying KT Logistics in May. Eugene Group won the rights to acquire 100% stake in Korea's largest electronics retailer Himart for KW1.95 tril ($2.1 bil), enabling the local construction company to enter the retail industry. Affinity Equity Partners and a group of investors bought Himart for KW787.8 bil in April 2005.
 
POSCO signed a deal to acquire 60% stake in the Malaysian steelmaker MEGS Industries, for the first time to acquire shares in a foreign steelmaker. The deal cost $15.6 mil and will be completed in early 2008. MEGS Industries is Malaysia's only producer of electro galvanized steel products with annual production of 120,000 tons.
POSCO has acquired a 20% stake in a molybdenum mine project operated by US based General Moly Inc at the cost of $170 mil. Molybdenum is a key ingredient in producing high-strength steel alloys. China, main supplier to POSCO, has unilaterally raised its price to over $72,000 per ton in recent months. 15,000 tons of molybdenum is projected to be produced from the Mt Hope mine in 2010, securing 3,000 tons for POSCO. In addition, POSCO has invested 8 coal mines including Mt Thorley, Foxleigh, Carborough Downs, Integra and Newpac of Australia, and Canadas Green Hills and Elkview mines, and 2 iron ore mines to secure a safe supply of natural resources.
 
ProLogis, the world's largest manager and developer of industrial distribution facilities, signed a MOU in Seoul to develop 667,000 sqm of logistics support space in Gyeonggi Province as part of an effort to expand its Northeast Asian presence. The investment coincides with Korea's long-term strategy to turn the country into a logistics hub for the region. ProLogis, founded in 1991, is a Fortune 100 company with assets valued at $15.1 bil.
Nokia, the world's biggest maker of mobile phones, plans to move 4 production lines to Masan in Korea, from Salo in Finland, aiming to expand production in Asia to help meet increased demand. Nokia earlier this month forecast industry volume growth in the Asia-Pacific region, China, the Middle East and Africa will exceed 15% in 2008, beating the pace in the Americas and Europe.
 
STX Energy, a unit of STX Group, bought stakes in 3 offshore oil fields in Europe for about $140 mil from Royal Dutch Shell Plc, for the first time that a Korean company is to explore oil fields in partnership with major oil companies overseas through stake purchases. STX Energy signed contracts to acquire a 10% stake in Block 007 southeast off Faroe Islands and a 25% stake in Block 2-94 and Block 2-05, northwest off Ireland.

MONETARY AND ECONOMIC INDICES

KOSPI started the month at 1,902, plunged to 1,839 following the fluctuation in US money market due to sub-prime mortgage crisis, soared to 1,953 with the election of business friendly president and ended at 1897. Stocks underwent an impressive bull run in 2007 with its key index surpassing the landmark 2,000 mark, for the first time, to 2,004.22 on July 25, on the rallies and a steady cash inflow into stock funds.. Koreas share prices have risen 28.6% this year. The balance of stock funds in Korea reached KW106 tril ($114.8 bil) as of the end of Nov, up 129% from the end of last year. The equity-type funds accounted for 35% of the total balance of mutual funds.
Foreign investors have shed more stocks this year than any other year. Their net sales amounted to KW27.7 tril ($30 bil) between Jan-Nov this year, fueled by the US sub-prime mortgage crisis. Foreign investors held a combined 32.52% of local stocks listed on the main bourse as of Dec 3, down from 37.22% at the end of last year.
In contrast to the stock sales, foreign investors have bought nearly KW28 tril of local bonds this year alone. The total corporate and state bonds held by foreign players topped KW30 tril in 2007, equivalent to about 3.7% of the total local bonds.
KWon has once been weakened to 943 against USDollar due to Federal Reserve cut in its bench mark interest rate and foreigners dumping of Korean stocks, but kept stable in the box of 922-936. Korea's foreign exchange reserves increased modestly in Dec to US$262.2 bil, up $290 mil from Nov, mainly due to increased investment profits.
BOK kept its key interest rate unchanged for the fourth straight month for Dec at a 6-year high of 5%, despite growing inflationary pressures. An average floating mortgage rate extended by commercial banks hit an almost 5-year high to 6.55% a year in Oct. The yield on 3 years corporate bond climbed from 6.46% to 6.77% through the month. Shinhan Bank's long-term mortgage loan's fixed interest rate was up to 8.87% from 7.23%. The rate of Woori Bank's mortgage loan, specially designed for apartment buyers, is up from 7.56% to 9.06% a year. Kookmin Bank's fixed rate of the For You Long-term Loan is 8.86%, up from 7.37% a year ago.
The jobless rate stayed in Nov at 3.2%, the lowest since Dec 2002, compared with 3.1% in Oct. Korea's inflation rose 3.6% in Dec on year, the biggest since Oct 2004, compared with a 3.5% gain in Nov, as crude oil prices climbed. Koreas import prices jumped 18.8% in Nov on year at the fastest pace in over 9 years on soaring crude oil costs, accelerating from 11.2% in Oct.

SHIPBUILDING AND SHIPPING

OUTLOOK ON KOREAN SHIPBUILG IN 2008
The year of 2007 was, in a word, the feast for Korean shipbuilding industry. The Big 3 enjoyed the glory to be the member of $20 bil in receiving order. Korean yards delivered the ships worth $27 bil, compared $22.1 bil in 2006, expecting $30 bil in 2008 for the first time in the world. HHI entered KW1 tril net profit club, earning KW1.22 tril in first 9 months of 2007. STX achieved the goal to win the newbuilding orders worth $10 bil in 2007, globally recognized as a major yards. The prices of the ships were continuously raised. HMD led world PCC market after receiving more than 30 units. Korean shipbuilding industry widely opened the possibility to fabricate the ship blocks in NKorea, which is considered far more favorable to China in many aspects.
Now the primary concern to everybody is what will be the shape of market in 2008. The volume of orders in newbuilding will be definitely decreased from the one in 2007, as Korean yards will not rush to take orders, as they secured the workload for 4 years. They lowered the sales target in 2008. HHI set the target at KW18.6 tril much lower than the record in 2007 of $25.3 bil, SHI at $15-16 bil, 30% lower than 2007, and DSME lowered to $17.5 bil. However, they expect to secure the orders on selective basis with higher-value-added-ship, as the market for LNG carrier and super tankers could be revived. The delayed LNG new building projects in West Africa, Australia and Russia are expected to restart and VLCC will come back on the back of global measure to restrict single hull.
The situation in China is the point to notice. After the successful festival of Olympic with the national pride and satisfaction, some oppressions on the matter of human right and basic life style seem inevitable to bear to cope with the discontents of the people, such as conflicts between rich and poor, among races and geographical locations, created by explosive economic expansion. It will affect not only social affairs but the deeply in economy. Chinese President Hu Jintao has already warned forceful measures to curb rising food prices and a booming real estate market in 2008.
The aftermath of US sub-prime mortgage together with the speculative orders may give negative affects to the market. Several leading banks have stopped lending and financing the newbuilding programme, influenced by subprime mortgage crisis and uncertainties in the market. The speculative investors will face the challenge of the toppled balance in supply and demand in 2008.
BOK introduced new rules banning Korean shipowners and financiers from raising USDollar funding from domestic lenders, in order to have better control of money supply and to avoid unnecessary short term borrowing in USDollar. Some Chinese yards started to ask shipowners to pay in alternative currencies rather than USDollar and Korean government recommended the yards to make the contract on the basis of KWon to stabilize local currency. SHI has already managed to conclude 2 contracts in KWon in 2007. Financings are seemingly tougher, and many deals concluded in 2007 have not yet been able to find proper finance and may fail as a result.
 
HHI concluded a contract to build for a Singaporean owner with 9 x 5000 teu container vessels, Geoyang 2 x 313K VLOC and D'Alesio Group 2 x 52K MR chemical/pc, while Hyundai Samho has Kyla Shipping for 2 x 158K Suezmax tankers.
DSME received from European Major Oil for KW2 tril ($2.1 bil) order to build 1 x FPSO, securing the biggest single contract in the world, chairman of AP Moller-Maersk 2 x 180K capsizes, Asian owner 2 x 180K bulkers, Oceanian 1 x drillship, and Daewoo Mangalia agreed with Claus-Peter Offen for 6+3 x 5,500 teu box ships.
SHI won the orders from an American for 4 x 160K LNG, Zim 1 x 12,600-teu box ship,  Russian 2 x semisubmersible rig, and African + American 2 x drillships.
STX contracted with Avra Maritime for 4 x 180K bulkers, Adnatco 4 x 75K LR 1 PC and unidentified Mid East owner 4 x 58K bulkers.
SLS got the orders from United Arab Chemical Carriers for 10 x 45K chemical tanker. Sungdong has signed the contract for its acquisition of Masan Works of Hanjin Heavy Ind, previously known as Tacoma Shipyard, after paying KW130 bil. SPP agreed with Tankerska Plovidba for 2 x 35K bulkers and Great Eastern 2 x 81K bulkers.
Daesun agreed with a local owner for 1 x low grade nuclear waste carrier, Regional Container Lines 2 x 950 teu, and entered bulker market after it agreed with an Asian owner for 3+3 x 32K bulkers. 21st Century had Everlast Shipping for 5 x 34K bulkers.
C&Heavy won the orders from Van-Clipper Holding for 6+4 x 81K bulker. C&Group acquired 86% stake in Shinwoo Shipbuilding in Koje Island to convert the site to the base of building capsize bulkers for the delivery from third quarter of 2009.
 
The government is to launch a fund investing in overseas harbors and logistic facilities, in such countries as Russia, Vietnam, India, China and Italy. It jointly raised capital of around KW880 bil ($900 mil) with KDB and other state and private financiers. The investment scheme comes as the international cargo transport industry has soared on the back of fast-growing international trade in recent years.
Hanjin Shipping puts 2 x 6500 teu most modernized liners, Hanjin Mumbai, Hanjin Shenzen, to Asia- Europe route, after christened in Ulsan on Dec 6, replacing 5,500 teu class ships in the Service.
PVP of Malaysia converted BW to the share of Hanjin Shipping to take 9.92% stake in the company, with remaining 5.73% in BW, becoming biggest single share holder of Hanjin, while aggregated total of family friendly stake is 21.41%.
STX Pan Ocean placed order with Cosco Zhoushan for 4 x supramax bulker for 2010 delivery.