Author : Hwang & Co
Date : 08-04-03 13:10
Hit : 20246
Topics -Lee Myung-bak inaugurated in 17th president. -Sungnyemun burned down. -Graduate law school in dispute. -NK remains quiet about new government. -Denuclearization procedure in NK delayed. -New York Philharmonic performed ¡°From the New World¡± in Pyongyang. -Korea marked trade deficit the third month in a row. -The court ruled Lone Star guilty to manipulate the buying prices. -Exoduses by Korean business men from China is accelerating. -Korea rushes to secure the energy and natural resources over the world. -Evil is not coming alone. While Samsung¡¯s corruption scandal came to more serious stage with special probe, its barge hit VLCC to cause oil spill, its former car makers brought huge debt to pay, and Sony broke a traditional tie with Samsung. -HMC expands its presence in India. -Local construction companies extended boom. -Consumer price rose on import price. -The price of steel plate sky rocketing. -The ships¡¯ prices are soaring. -Shipbuilders continue earning surprise in 2007, while shippers ordinarily performed.
GOVERNMENT AND SOCIETY
Lee Myung-bak was inaugurated in the country's 17th president on Feb 25. He vowed to upgrade relations with USA and reiterated his commitment of assistance for NK once it gave up its nuclear programs. Lee has promised to raise annual growth by 7% during his 5 year term in office, lay the foundation of transforming Korea into the world¡¯s seventh-largest economy in 10 years, and increase the country¡¯s per-capita income to $40,000 from about $20,000 at present. He also vowed to create a total of 3 mil new jobs in the next 5 year, and cut government red tape and taxes, and boost the earnings of ordinary people. The inauguration ceremony was attended by the dignitaries over the world, including Cambodian Prime Minister, Uzbekistan President, Mongolian President, Indonesian Vice President, Deputy PM of Kazakhstan, Chinese State Councilor Tang Jiaxuan, Russian PM Victor Zubkov and US Secretary of State Condoleezza Rice, Singapore¡¯s former PM and current Senior Minister Goh Chok Tong, and Japanese PM Yasuo Fukuda with former Japanese PM Nakasone and Japan's Democratic Party acting president Naoto Kan. President Lee has handpicked a group of seasoned veterans for 14 Cabinet nominees to lead his first Cabinet, calling a "conservative-yet-practical." The nominees over the age of 60 years old dominated the Cabinet, with their average age reaching 60.7 years old. President Lee got off to a rough start due to the continuing controversy over his Cabinet nominees. Gender Equality Minister nominee dropped out on the night before Lee's inauguration, because of the allegations that she engaged in real estate speculation. The United Democratic Party called for the replacement of the nominees to head the ministries of defense and environment, and the president's top secretary of social policies, for allegedly plagiarizing from a student's thesis, allegations of speculation in real estate and their children held US citizenship. President Lee named his top secretaries, a group packed with US-educated scholars whose ideas are regarded to have underpinned his economic, political and security policies. The new government is to reduce the number of its employees by 3.247 as part of an effort to streamline the public sector. The reduction is the result of reducing the number of ministries and downsizing various government agencies. Under the new government, there will be 15 ministries rather than the current 18, with the total number of central government bodies being cut to 45 from 56.
The independent counsel cleared President-elect Lee of all allegations, thereby paving the way for the smooth inauguration of his presidency. The counsel, kicked off on Jan 15 and had a 40-day mandate, was initiated by Lee's political rivals who denounced the conclusions of the state prosecutors' investigation last year as "politically biased." Despite the allegations challenging his ethics, he won a landslide, with 48.7% of the vote. The investigation had focused on 3 major allegations, whether Lee was involved in the alleged stock manipulation and embezzlement scheme; whether he concealed his assets, in violation of the law pertaining to civil servants; whether, as the mayor of Seoul, he played a role in allowing an unqualified firm to purchase land in the Digital Media Center.
The US House adopted a resolution congratulating Korea¡¯s newly elected president and wishing him a smooth transition and inauguration. President Lee received an award from the TIME magazine for his contribution to resolving environmental issues facing the world. President-elect Lee was one of the 45 heroes chosen in Oct last year, including Mikhail Gorbachev and Prince Charles of UK. TIME highly valued Lee's contribution to improve a Seoul environment and also touted his drive to restore the Cheonggyecheon, "an environmentally friendly civic jewel."
The prospect for the ratification of Korea-US FTA is getting cloudier in Washington after 2 leading Democratic presidential candidates have expressed their opposition. On June 30, 2007, Seoul and Washington signed a landmark deal that would be the biggest trade agreement after NAFTA for USA and the biggest ever for Korea. Korea took its first step toward parliamentary ratification, submitting the trade bill to a parliamentary committee for a review, despite labor unions¡¯ and farmers groups¡¯ continuous large demonstrations. The upcoming general elections in April are also expected to factor into the timing of the ratification. President Roh and his successor Lee Myung-bak agreed to work toward the ratification of the FTA with USA before Roh's term Feb 24, but failed. Lee will push for a full opening of the domestic market to US beef ahead of his expected summit with US President George Bush in March. The US embassy in Korea reaffirmed that the beef from Westland/ Hallmark has not been exported to Korea and Japan since the discovery of a mad cow disease at an American farm in 2003. The company announced a recall of some 65,000 tons of beef, after an undercover video surfaced showing workers kicking and using forklifts to force ill cows to walk. Seoul had stopped importing US beef after the 2003 mad cow disease scare but recently agreed to partially lift restrictions by allowing in boneless products. Korea suspended the imports in Oct 2007 after repeatedly finding bone fragments from US beef shipments.
Korea and EU made the most progress during their sixth round of talks on FTA in Seoul, since the launch of talks in May. Seoul and Brussels narrowed differences on less sensitive issues, such as services, investment, customs, and trade regulations, but did not touch key sensitive issues, such as agricultural sector, general non-tariff barriers for automobiles and general tariff rate offers. Both parties aim to seal a "balanced" and comprehensive deal that would boost bilateral trade, which reached $89.8 bil in 2007. The EU is Korea's second-largest trading partner after China, while for the EU, Korea is its eighth-largest trading partner.
The Sungnyemun, landmark gate, standing for 610 years in the heart of Seoul, was burned down by a drunken arsonist reduced to ugly twisted beams and ashes. Restoring the national treasure is expected to take up to 3 years and cost about KW20 bil, but it would not be treasure any more, but only a replica. "Repair the barn after the cow is stolen." What a useless fuss. A 69-year-old man previously convicted of setting fire to another palace confessed to incinerating the landmark, out of anger over what he claims was insufficient compensation for his land in an urban redevelopment case. Sungnyemun, "gate of revering decorum," was the southern gate of the walls that circled Seoul during the Choseon dynasty (1392-1910). It had survived a series of catastrophes, from Japanese invasions in the 16th century to the 1950-1953 Korean War.
The nation's first jury trial was held in the city of Daegu, signaling a major advance in judicial democracy, heralding a major shift in court proceedings, which have been conducted exclusively by the so-called "3 wheels of the law", judges, prosecutors and defense counsel. The court sent letters to some 1,000 citizens in the district of the court's jurisdiction, asking them to participate. Only about 10% appeared at the court. The government plans to make it permanent in 2012 after further testing. The jury will deliver its verdict to the presiding judge, and discuss the sentencing with the judge, as well, following its deliberations, which are held in secret.
Dongguk University filed a lawsuit against the Education Ministry to nullify the government's decision to allow 25 universities to open graduate law schools next year, excluding them. 4 other universities that failed to get ministry approval, had filed similar suits earlier. The Education Ministry approved the Legal Education Committee's choice of 25 schools out of 41 bidders. Korea University is considering withdrawing its application to run a new type of graduate law school next year, complaining that the government-set quota of 120 students is not enough. Seoul National University was granted the largest quota of 150 students, followed by Yonsei, Korea and Sungkyunkwan universities with 120 each. A total of 2,000 graduate students are to be admitted to law schools when they open in March next year.
On Dec 7, 2007, an 11,800-ton crane barge, belonging to SHI, collided with the Hong Kong-registered VLCC, Hebei Spirit, puncturing 3 holes in the vessel, and causing the leakage of 10,900 tons of oil into the pristine seas of Taean County, the worst oil spill in Korean history. Experts have made a rough estimate of more than KW500 bil ($508 mil) in damages to tourism and oyster and abalone farming in the county. Over 1 mil volunteers have rushed to help clean up the oil spill in the area as of Feb 21. Samsung, blamed for the oil spill, set up a KW100 bil ($107m) fund to help its victims. SHI told that the fund would be in addition to any compensation it may have to pay as a result of legal action over the incident. Thousands of angry residents from Taean staged demonstrations, calling on SHI to pay full compensation. 3 residents have taken their own lives since the accident in desperation over their future.
The number of newborns increased for the second consecutive year in 2007. There were approximately 497,000 births last year, a 10.04% increase on year and the highest since 2001. The overall fertility rate rose to 1.26 last year, from 1.13 in 2006. The number of births had been on a steady decline between 2000 and 2005. Korean households allocated 12% of their monthly spending to children's education in 2007. Private education spending amounted to KW20.04 tril ($21.13 bil) last year. Korean parents spent a monthly average of KW222,000 per child on private education, accounting for 6.8% of the nation's average household monthly income.
The former head of the National Tax Service Jeon Goon-pyo was found guilty of bribery and was handed a three-and-a-half year prison sentence. Jeon, 54, was convicted of taking some KW80 mil ($84,000) while in the office from the former head of the Busan Regional Tax Office. The former tax chief was also ordered to pay KW79.4 mil in a fine. State prosecutors have in the past 5 months rounded up 215 people for manipulating academic credentials and professional certificates. 6 were arrested and 209 others booked in the nationwide probe since last Aug.
NORTH KOREA AND NATIONAL DEFENSE
North Korea remains unusually quiet about the incoming new administration under the conservatively pragmatic President Lee Myung-bak. Lee has sent the North "extremely confusing signals," taking a flexible approach to the pending inter-Korean projects, but also making significantly staunch moves such as a proposed abolition of the Unification Ministry, which had acted as the main channel for dialogue with the communist neighbor.
The 6-party talks have been stuck in the second denuclearization phase since the 2007 year-end deadline passed, with NK hesitating to provide a "complete" list of its nuclear programs. Pyongyang, for its part, has been demanding a timely provision of the corresponding incentives, which include the delivery of heavy fuel oil and energy equipment, along with removal from US list of states which sponsor terrorism. NK continues to maintain its "principle" position that it is not engaged in any Uranium Enriched Program and in any nuclear cooperation with other nations, and will not do so in the future. USA, on the other hand, has been firm that it will only start reimbursing the North, once the list includes a exact amount of its extracted plutonium, and a complete clarification of any uranium enrichment or proliferation activities. NK is reportedly removing 30 fuel rods every day from the reactor, and so far has removed some 1,440 of the 8,000 rods. The corresponding energy aid, in the meantime, has been delayed, with only 200,000 of the promised 500,000 tons of heavy fuel oil having been delivered so far. SKorea began providing the second shipment of 2,830 tons of steel plates, promised to NK under 6-party nuclear deal. SKorea sent first shipment of steel plates on Dec 22 as an alternative to oil.
Controversy is reigniting over the transparency of SKorea¡¯s humanitarian aid distribution in NK, after a news report claimed that some of the rice was being diverted to the military. Separately, NK has been reportedly increasing ground and air maneuvers since Dec last year, possibly using some of the heavy fuel oil provided under the 6-party agreement. NK is also suspected to be appropriating the fuel oil provided under the nuclear deal and diverting some cash taken from inter-Korean economic cooperation projects to military use.
The New York Philharmonic became the most prominent American cultural group to travel to NK since the peninsula¡¯s division after World War II. The orchestra performed ¡°From The New World¡± by Dvorak and ¡°American in Paris¡¯ by Gershin on Feb 26 evening at the East Pyongyang Grand Theater. The performance comes amid a US diplomatic push to engage NK, in the wake of Pyongyang¡¯s Oct 2006 nuclear test that cemented its status as a nuclear-armed state. Former Defense Secretary William Perry and former US Ambassador to Korea Donald Gregg attended the orchestra and talked with the NK¡¯s authorities about denuclearization to express timing "Do it now. Do it while Bush is in office." On the stage, adorned by the national flags of both USA and NK, they played the national anthems of both nations.
NK is reportedly still developing ballistic missiles that can deliver nuclear warheads despite the 6-nation nuclear disarmament talks. The arsenal is told to pose formidable threats to USA and its regional allies SKorea and Japan. Development of the Taepodong-2, which has the potential to reach continental USA with a nuclear payload, continues despite a failed July 2006 test launch. NK also continues work on an intermediate-range ballistic missile.
A giant US aircraft carrier, 93,000-ton USS Nimitz, arrived in Busan to participate in an annual Korea-USA joint military drill. Some 27,000 SKorean and US troops participated in the drill during March 2-7. The USS Nimitz is a nuclear-propelled supercarrier, with 6,000 crew on board, which comprises 80 aircraft and about 10 warships and submarines. NKorean has denounced the military maneuver, claiming it is preparation for an invasion.
ECONOMY AND POLICY
Incoming Finance Minister forecasts the economy will grow less than 5% this year, falling short of the new president's target. The minister pledged to lower taxes and speed up deregulation to encourage business to increase investment and hiring in order to shore up growth in the economy. President Lee previously said he's aiming for an expansion of about 6% this year.
Korea¡¯s trade deficit narrowed in Feb as strong export growth offset the surge in crude oil prices. The country¡¯s trade deficit stood at $800 mil, compared with $3.69 bil in Jan. The figure marks the third month in a row that the country¡¯s trade balance has stayed in the red, despite a rise in exports. Exports rose 20.2% to $31.5 bil in Feb, while imports shot up 27.3% to a record $32.3 bil. The latest tally showed that imports of crude oil and other raw materials rose 36.0% annually. Crude imports led the gain by jumping 60% to $6.2 bil in Feb. Korea's current account deficit widened to an 11-year high to $2.6 bil in Jan, compared with $813.8 mil deficit in Dec, as the trade balance swung to the red. The shortfall of the service account increased to $2.07 bil in Feb, compared with a $1.24 bil deficit in Jan as Koreans' spending on overseas travel and study rose. The BOK predicted earlier that the current account will likely swing to a shortfall of about $3 bil this year, the first deficit since 1997. Korea¡¯ trade surplus with Singapore between March 2006 and Jan 2008 amounted to $8.69 bil, up 150.5% in 2 years since a bilateral FTA went into effect. Korea¡¯s exports to Singapore grew 61.7% to $21.22 bil. Korea¡¯s digital electronics exports rose 7.6% on year to $10.75 bil in Jan, the seventh month in a row exceeding the $10 bil mark, thanks to strong demand for mobile phones and digital TV sets, marking the trade surplus at $4.49 bil. The overseas sales of semiconductors were down 21.1% on year to $2.8 bil, despite a 40% increase in shipments. The average price of a memory chip fell to $2.9 last month from $6.4 a year earlier. Korea's dependence on USA for exports fell to a record low in 2007, expanding 6% to $45.7 bil, accounting for 12.3% of Korea's total export volume. USA accounted for nearly 30% of total Korean exports in 1990, but the percentage has notably declined since 2000. Total outbound shipments expanded 14.2% last year on year to reach a record $371.8 bil, making up 37% of Korea's GDP. China is Korea's largest export destination, followed by the EU. USA is the third-largest buyer of Korean goods.
The Seoul Central District Court ruled that the president of Lone Star Funds' Korean office sought to artificially reduce the stock price of KEB Credit Card Service with the intention of lowering its acquisition price in 2003. He was immediately detained and received a 5-year jail sentence, while KEB and LSF-KEB Holdings were each slapped with KW25 bil ($27 mil) fines. LSF-KEB Holdings is the paper company through which Lone Star purchased KEB. Lone Star immediately protested, saying it would file an appeal. The allegation against Lone Star earlier prevented it from selling its KEB stake to Kookmin Bank, and is also prompting speculation about the fallout on the planned sale of its 51% stake in KEB to HSBC Holdings. The Financial Supervisory Commission said it would not approve the sale until the legal disputes are completely resolved. Lone Star is estimated to have recouped more than 85% of its $2 bil investment through the 2006 dividend payout and the sale of a 13.6% stake in KEB so far. The regulator will announce its decision by the end of March. If the regulator deems Lone Star as an illegitimate major stakeholder, it can force the fund to sell its stakes exceeding 10%. HSBC announced last year that it would acquire Lone Star's 51% stake in KEB for $6.3 bil on the condition that it got regulatory approval by April 30, 2008.
The widening interest rate gap between USA and Korea is inducing foreign currency speculators to borrow dollars from US banks at lower interest rates and invest in higher-yielding bonds in the Korean market. The rate gap between USA and Korea widened to 2% on Jan 30 when the US Federal Reserve slashed its key interest rate to 3%. The net buying of Korean bonds by foreign investors grew KW3.4 tril ($3.6 bil) in Jan, increasing the net buying of Korean bonds to a record high of KW40.3 tril.
The rate of illegal exoduses by a total of 206 Korean businesses from the Chinese city of Qingdao is accelerating. Of those, 42.2% made a ¡°flight by night.¡± Between 2000 and 2007, a total of 8,344 Korean companies invested in Qingdao. The major reason that Korean companies are leaving China is the growing labor costs by a new labor contract law and the restrictions imposed on the trade of low-cost processed goods, the decreasing tax benefits for foreign businesses, and the more stringent regulations aimed at protecting the environment. The Korean government and business groups will cooperate in drawing up measures to help Korean companies strengthen competitiveness, and provide resources for weaker ones, to adapt to, or safely exit the country. They planned to establish a help desk at the Korean Embassy in Beijing and its consulate in Qingdao, working closely with local authorities to help Korean firms leave the country and protect businessmen from illegal detainment by Chinese workers.
Woori Bank, a unit of Korea's third-largest financial services company, has signed a MOU with the Russian government to invest in the construction of roads, buildings and resource projects on the island of Sakhalin, as the investor and financial adviser for the economic development project of Sakhalin. The Russian island has recently emerged as an attractive investment spot after oil was found in the region. The total investment in Sakhalin reached $18.5 bil as of Aug last year. KOEXIM Bank sold 1 bil ringgit ($310.9 mil) worth of bonds, consisted of 5-year and 10-year tranches, aiming to tap the Malaysian market. The global credit crisis and the prospect of a US recession have raised the price of borrowing in dollars, sending them scouring the world for niche markets that can provide cheaper debt.
Foreign investors will get 76% of the total dividends of KW1.88 tril from local banks, where they own 60-80% of shares. Merrill Lynch, the largest US brokerage, has obtained a banking license from Korea's financial regulator, enabling them to open a branch and expand its Korean business to foreign-exchange, derivatives, lending and loan trading, structured deposits, bonds and futures.
The government has set aside KW357.6 bil ($378.1 mil) in funds to help local energy companies develop overseas oil and gas fields this year. Most of the funds are to be used to help develop offshore west Kamchatka fields in Russia, the Iman field in Azerbaijan, and other overseas projects. Korea¡¯s self-sufficiency in oil and gas reached 4.2% of total demand in 2007. The local companies including state-run KNOC and KOGAS could supply 3.0% of the crude oil and 9.1% of the natural gas
A consortium of Korean energy companies, led by the state-run Korea National Oil Corporation, signed a MOU with the Kurdistan Regional Government in Seoul allowing the development of 1-2 bil barrels of untapped crude oil in northern Iraq. The "package deal" permits the consortium to tap into the oil fields while calling for it to help in building some of the infrastructure needed by Iraq's autonomous region to prosper and sustain growth. In an earlier agreement, the KNOC are under way to establish a local office to begin developing the Bazian oil field, which is estimated to put out about 500 million barrels of crude. Korean energy developers have purchased operational oil fields in USA and Congo that hold a combined 90 mil barrels of crude oil. The acquisition of the 16 oil fields in the Gulf of Mexico and the M¡¯Boundi field in the Long Congo Basin raises the country¡¯s self-sufficiency rate in oil and gas to 4.92% of total demand, up from 4.2%, with daily production of 21,400 barrels of crude oil and gas from 2 contracts. A consortium, consisting of KNOC and Samsung Corp, signed a contract with Taylor Energy of USA, to buy an oil field in Mexican Gulf, with an estimated reserve of 61 mil bbl. A consortium led by KOGAS plans to sign a MOU with Uzbekneftegaz National Holding in Seoul to set up a joint venture for an exploitation project in the Surgil gas field, which is one of the largest gas fields that Korea has ever secured, with gas reserves of about 4.7 tril cuft. The field is expected to generate 96 mil tons of LNG, which amounts to nearly 4 times Korea's annual LNG consumption. Daewoo International has won a contract to explore 2 oil fields in Uzbekistan, aiming to tap crude oil and natural gas in the coming 5 years. The company has bought exploration rights from Uzbek- neftegaz. The fields are located in the country's Northwestern region, adjacent to Kazakhstan. Korea last year imported a record 38.12 mil barrels of crude from Russia, over a 2-fold jump from 13.97 mil barrels recorded in 2006, showing a declining dependence on the Middle East and Southeast Asia for the natural resource. Russia now stands as Korea's seventh-largest oil supplier after Saudi Arabia, UAE, Kuwait, Iran, Iraq, Qatar and Australia. Korea plans to import 1.5 mil tons of natural gas from Russia for the first time this year. It represents 5.1% of Korea's gas needs for 2008. Korea¡¯s consumption of oil and petroleum-related products grew 2.8% last year amid skyrocketing crude prices. Koreans consumed 786.4 mil barrels of oil and other related products last year.
International mineral prices are predicted to rise as much as 50% this year. The copper prices reached $7,149 per mton at the end of Jan from $6,600 per ton in Dec. The Chinese government has a newly-imposed 15% export tax on zinc, prompting the country's zinc exports to be halved from last year's 276,000 mtons. Zinc prices had already risen by $119 by the end of Jan. More than 50% of the world's iron ore production likely to be directed toward China, predicting a rise of between 30-50% in iron ore prices this year. POSCO has completed a $170 mil deal, with the US-based mineral exploration firm General Moly Inc, which gives POSCO the rights to buy 20% of molybdenum produced from the mine in Mount Hope, Nevada. China, the world's leading producer of molybdenum, has restricted exports, pushing up prices to over $72,000 per ton in recent years from the $6,600 in 2002. POSCO agreed to pay 65% more for iron ore this year from the Brazilian mining company Vale, to receive between 20-30% of its iron ore supplies.
A total of 13 local companies entered trillion club, earning more than KW10 tril ($11 bil) in sales and KW1 tril in operating income last year. Samsung Electronic, POSCO and HMC have been listed, and 5 local banks, such as Kookmin, Shinhan, Woori, Hana Financial Group and the Industrial Bank of Korea, entered the club, thanks to the fast-increasing lending business. SK Telecom and KT Corp, the nation's leading tele- communication companies, also earned nearly KW2.2 and KW1.5 tril, respectively, in operating profits. S-Oil Corp, the nation's third largest refinery, newly joined the club, riding the fast-growing petrochemical demand from Asia. HHI is another new entrant into the blue chip list with KW15.5 tril in revenue and KW1.8 tril in operating profit. LG Philips LCD also raked in almost KW1.5 tril in profit because of a rebound in the global demand for flat screen televisions. The total earnings of the 13 firms amounted to slightly over KW34 tril, which is nearly 3 quarters of the combined income earned by 598 leading local companies. The corruption scandal engulfing Samsung Group deepened. For almost 3 months, Samsung has been under intense public scrutiny, after its former top legal executive Kim Yong-Chul turned whistle blower over the group¡¯s copious alleged corporate malfeasance cases. The probe started to investigate whether Chairman Lee, 65-year-old tycoon, was involved in a controversial deal in 1996, which allegedly helped the transfer the group¡¯s control to his only son. Samsung SDS has been accused of having issued company bonds worth KW23 bil ($25 mil) in 1999 to 6 people including chairman Lee's only son and 2 daughters at below-market prices. Lee Jae-yong, chairman¡¯s son, currently holds a 25.1% stake in Everland, Korea¡¯s biggest amusement park operator, and de facto holding company of Samsung Group. Kim Yong-chul claims that chairman Lee's wife and other relatives bought around 30 expensive paintings valued at tens of millions of dollars at Christie's auction house in New York with the alleged slush fund in 2002-2003. The team is also looking into over 3,800 borrowed-name accounts created under some 1,800 executives of the group. The accounts are suspected to have been used to accumulate the purported slush funds, worth KW200 bil. Kim Yong-chul claimed late last year that the group accumulated massive slush funds worth KW200 bil to bribe influential figures, including government officials, lawmakers and prosecutors. The special investigation started on Jan 10 with a mandate to last up to 105 days.
Samsung Group is to appeal a court ruling in Jan that ordered the conglomerate to pay a total of KW2.3 tril ($2.4 bil) to creditors of its failed automaking venture. Samsung Group started the auto business in 1995 with the launch of Samsung Motors. But the auto unit went under court receivership 4 years later, and was eventually taken over by Renault SA of France in 2000, renaming Renault Samsung Motors. Sony, Japan's largest consumer electronics firm, announced that it will establish a joint venture with Sharp to produce so-called tenth-generation mother glass substrates, signaling an end to a 4-year partnership between Sony and Samsung. Samsung and Sony set up a US$2 bil joint venture, S-LCD Corp, in Korea in April 2005, initiating cooperative efforts in the LCD sector. The news that Sony has chosen Sharp over SEC as its partner for its most advanced flat-screen TVs have dealt another blow to the already-struggling Samsung Group.
SK Energy signed the LOI with Changjeou Chemical to jointly establish a Chemical complex in Changjeou in China to produce 100,000 tons of Toluen Diisocyanate, 60,000 tons of Dinitrotoluen, 160,000 tons Caustic Soda and 100,000 tons nitric acid a year, investing $550 mil. GS Caltex announced to invest about KW3 tril for the expansion of its No 2 heavy oil upgrading facilities and the construction of No 3 HOU plant with daily production capacity of 145,000 bbl by 2010.
LG Electronics (LGE) outpaced Samsung SDI to become the world's No 2 maker of panel display plasmas in the fourth quarter of 2007, buoyed by brisk demand for its 32-inch plasma television in emerging markets. LGE made up 28.4% of the PDP market, while its home rival Samsung SDI's market share kept 25.1%. Matsushita Electric maintained its top position with 36.8% share.
Hyundai Motor Co (HMC) opened its second plant in Chennai, Tamil Nadu in southern India, doubling its annual production capacity in the country to 600,000 units. HMC invested about $1 bil in the second plant, expecting to produce 530,000 cars in India this year, to export about half the production. The new plant will be used to exclusively produce the company's new compact car i10, which won 4 of the 5 car of the year prizes awarded by the Indian media. Hyundai Capital Services, 43% owned by GE, plans to start auto financing services in USA, offering automobile loans to beef up HMC's marketing in USA, where it targets sales of 500,000 units for the first time this year. Hyundai Capital is 56.5% owned by HMC.
Local construction companies, that posted record profits from overseas projects last year, are expected to extend the boom into this year. In Jan, they secured 58 construction contracts overseas valued at $5.3 bil, compared with 51 project of $2.8 bil in Jan last year. In 2007, the industry posted record overseas construction orders that totaled $39.8 bil. Korea¡¯s Electric Power (KEPCO) has won from the West African Power Pool a $450 mil order to build a 400-megawatt combined cycle power plant in Maria Gleta, a free trade zone near Porto Novo, the capital of Benin. KEPCO agreed to build a $451 mil 200 megawatt coal-fired plant in Cebu, its third in the Philippines. It started construction of the. KEPCO is increasing investments in countries including the Philippines and China in an effort to offset slower sales growth in Korea, where the electricity demand expected to rise 1.4% annually after 2010, and by less than 1% after 2020. KEPCO will pay 60% of the cost and Salcon Power Corp the rest. 2 companies will complete the plant in 2011, and own and operate it for 25 years jointly. Daewoo Maritime Construction, a subsidiary of DSME, won the project to construct new city in Duqm in Oman, comparable the City of Dubai. The first phase of the super large project costs exceeding $20 bil. The project will be the largest Korean builder has ever involved. Sungwon Corp won a 400-mil-dirham ($109 mil) contract to build a tower in Dubai's Business Bay district. Work on Trend Capital GmbH's 34-story Silver Star Tower will start in May and is due to end in 2010. Sungwon will invest $1.2 bil in Middle East property projects over the next 3 years. It is working on public works projects in Bahrain and Qatar and plans to take on similar contracts in UAE. Ssangyong E&C with 4 other Korean contractors signed an initial agreement with the Kurdistan regional government to build roads, factories and other infrastructure projects worth an estimated KW10 tril ($10.6 bil) in northern Iraq. Construction will start in March on the first project, a 450-kilometer highway to Sulaymaniyah worth about KW2 tril. The group will also be involved in building chemical factories, hospitals and schools in the Kurd area in the northern region of the country. Hanshin Construction won the project from Vietnam Investment and Development Bank to erect 25 stories financing centre in Hanoi City at $28.5 mil. Samsung Engineering won a KW239.2 bil ($253 mil) order from Saudi Kayan Petrochemical. The order is part of a $341 mil order to build a polypropylene plant with an output capacity of 350,000 tons.
Korean Air Lines is to buy 3 more Airbus SAS A380 superjumbos, valued at $906 mil for the delivery during 2012-2013. The A380 burns 12% less fuel per seat than Boeing's 747-400 aircraft. The carrier expects passenger traffic on international flights to grow 6.4% in 2008. The A380 will be used for long-haul flights to cities such as Los Angeles, Paris and New York. Government is to allow only airlines that have been operating in their countries for over 2 years and have had no casualties on their past 20,000 flights to offer service in Korea. Several domestic budget airlines such as Jeju Air are set to launch short-haul international flights in the coming years. Asiana Airlines is to invest in Busan International Air to advance into the fast-growing budget airline industry, after injecting KW23 bil ($24.5 mil). The budget carrier aims to launch the first flight in June next year. Korean Air Lines plans to launch a new budget airline this year, targeting short-haul routes to Japan and China. Singapore's Tiger Airways established a low-cost airline venture with the Incheon City government this year. Korea and USA signed a comprehensive pact on aviation safety in Singapore, allowing Korean aviation product manufacturers to easily gain certification from the US Federal Aviation Administration, needed to export their own brands of approximately 150 products such as aircraft tires to the USA.
Morgan Stanley PE was selected as the preferred bidder to buy a controlling stake of Daewoo Electronics, Korea¡¯s third-largest electronics maker, aiming to seal a final deal by the end of May. Korea¡¯s top mobile phone carrier SK Telecom has bought a controlling 65.5% stake in Shenzhen E-eye High Tech Co for KW13.9 bil ($14.7 mil), a Chinese Global Positioning System service provider.
MONETARY AND ECONOMIC INDICES
Korea Composite Stock Price Index has been fluctuated in the range of 1634-1720-1686-1736, down on the concern about a possible US recession, and up on the performance of blue chip stocks and expectation of incoming business-friendly government. The KOSPI fell around 15% in Jan and Foreign investors have sold around KW2 tril ($2.2 bil) of local stocks in Feb. The market capitalization of the shares held by foreign investors fell KW35.47 tril to KW272.79 tril as of Feb 4 from the end of last year, dropping 0.3% points to 32.08% during the period, compared with more than 40% in 2005, which was continuously reduced thereafter. Korea invested around KW55.5 tril in stock funds invested in overseas bourses, mostly in emerging market such as China and Vietnam. But many funds suffered losses in recent months, as the Shanghai stock market has tumbled nearly 30% from its peak last Oct.
KWon exchange rate has been lowered from 944 to 936 against USD. BOK left its key interest rate unchanged at 5% for the sixth consecutive month, agonizing over inflation and the risk of an economic downturn due to international financial turmoil and the slowdown of the US economy. The yield for 3 years corporate bond has been in the range of 6.2-6.4% through out the month. As of the end of Feb, the nation's foreign reserves amounted to $262.4 bil, up $490 mil from the previous month. The foreign currency savings of residents in Korea fell to $19.4 bil in Jan, compared with $21.25 bil in Dec due mainly to higher import bills. The daily trading volume of the Korean foreign exchange in 2007 recorded a hike in forward selling to an average of $46.5 bil, compared with $30.2 bil in 2006. Consumer prices rose in Feb due to an increase in the price of crude oil, agricultural and manufactured products. The consumer price index rose 3.6% in Feb on year, from 3.9% in Jan and a 3.6% gain in Dec, breaching the BOK¡¯s target range of 2.5-3.5%. Import prices jumped 21.2% in Jan on year, the fastest clip in more than 9 years due mainly to soaring oil costs. Unemployment fell to 3% in Jan from 3.1% in Dec, the lowest since Sept 2002, as services, transport and finance companies hired more workers.
SHIPBUILDING AND SHIPPING
The shipbuilding industry, who has enjoyed unprecedented boom, is seemingly hitting the rocks, facing substantial increase of steel price, decrease of the volume of cargo movement due to possible downturn of global economy and shrinkage of ship financing on subprime mortgage crisis. Jinhui Shipping¡¯s decision to cancel an order at Dalian shipyard for 2 x 300K VLOCs is understood as a sign that the owners started to concern on the oversupply of the tonnage. The owner cites a failure to secure competitive financing for the ships and paid a compensation of $4 mil apiece, but it is unusual to cancel a contract for funding reasons when there is solid employment in place. More than 100 ships are currently on order and as many as 44 single-skin VLCCs could be ready for conversion into VLOCs. 615 units of capsize bulkers are on order, representing about a 100% of available existing fleet. Dongkuk Steel Mill, which supplies 30% of the steel to Korean shipbuilders, has increased prices of thick plate by 13% to KW820,000 ($871) per mt effective Feb 11, attributing to higher raw material costs. HHI is in negotiations over steel plate prices with Nippon Steel, who wants to increase prices by about 23% to $800 per mt. JFE Steel of Japan made a contract with Korean yards to raise the price of plates by $220-230 to $870-880 per ton for the supply in 2-3 quarter this year. Bao Steel raised 19.8% by $137 per ton, Shin Nippon increased 30% by $186 per ton. POSCO is to announce its raise at least 10%, as its price is lower by $120 than Hyundai Steel and about $200 below international prices. Despite the negative projections from various institutes that global new building market is facing downward trend with the adverse effect on profitability, the ships prices are continuously soaring in recent contracts. The price for a VLCC exceeded $154 mil, 150K LNGC touched $250 mil and 47K PC $55 mil, sufficiently reflecting rising prices of steel plates. Export Insurance Corp agreed to provide medium term loan of $460 mil for the contract to build 4 units of tankers between SHI and TeeKay Shipping.
The earning surprise in Korean shipbuilders continued in 2007. HHI¡¯s net profit for the year of 2007 stood at KW529.26 bil ($560.54 mil), a massive 124% hike on year. The revenues were up at KW2.85 tril a 22% increase on year. SHI posted the best performance in its history in 2007, marking sale of KW8.52 tril up 34.1%, operating profit KW457.2 tril surging 361% and net profit KW458.4 bil up 215% on year. Hanjin Heavy Ind has announced its first profit since it was spun off from its parent last Aug. The net earnings in the 5 months between Aug-Dec in 2007 were KW28.4b ($30.12m). Revenues for the period were KW1.44 tril, while operating profit was KW115.8 bil.
HHI announce to buy 2.28 mil own shares, aiming stabilizing share price and boosting the value of stocks. Its capitalization increased to 21.14% from 18.14%. Board of Hyundai Samho decided to acquire the stake in HMD worth KW227 bil, increasing its stake to 46% from 41% in HMD. HHI signed agreement with Elf Petroleum Nigeria for a FPSO to refine 160,000 bbl crude and 5 mil cbm natural gas, and have the storage of 2 mil bbl of crude, and agreed with Hapag-Lloyd 6 x 8,750-teu, MPC Capital 8 x 13,100-teu containerships, Metrostar 1+1 x 10,000 feet drillship, Oman Shipping 5 x 310K VLCCs, Taiwan Maritime Transport 2 x 320K VLCCs, HMM 2 x 180K bulkers and Parkroad Corp 2 x capesize-bulker. Hyundai Samho received the orders from TMT for 2 x 8,400 ceu PCTC, and Dong-A 2 x 179K bulker. HMD won the project from European for 10 x chemical tankers, IRISL 10 x 36.5K pc, WWL 4 x 8,000 LCTCs, and a European 4 x PC.
SHI agreed with General Maritime to build 2 x 115K tankers and Gulf Energy Maritime 2 x fully-coated tankers. DSME got the orders from Oman Shipping for 5 x 318K VLCCs, Brunei LNG 2+2 x 147K LNG-carrier, WWL 4 x 8,000 LCTCs, SPP won the order from Emirates Trading Agency for 2 x 35K handymaxes bulkers, 21Century - Laskaridis Shipping 3 x 34K handysize bulkers, Daesun - RCL 2+2 x 958 teu cont
Hanjin Shipping plans to spend 55.3 mil euros($37.2 mil) on the construction of a container terminal in Algeciras in Spain in order to meet rising shipping demand in Europe. The terminal will open in July 2010 with 3 berths, aiming to handle 1.5 mil TEU containers a year. STX Pan Ocean purchased for 2 x 2,740-teu King Anton and King Attila for $68.1m each from Konig & Cie. The vessels are to be delivered in April and June 2008 by Aker Ostsee shipyard. Korea Line appointed Kim Changsik, 57, vice president, to president and CEO. HeungA Shipping decided to buy 2 x 6.5K chemical tankers at KW27.97 bil
Korean shipping companies posted ordinary performance in 2007. Hanjin Shipping posted large increase in sales but net profit sharply plunged in 2007. The sale was KW6.94 tril up 14.6%, with net profit KW147.5 bil down 66.4% and operating profit of KW235.9 bil up 58.2% on year. Korea Special Shipping recorded the sale of KW77.54 bil down 7.8% with operating profit KW11.52 bil down 28.8% and net profit KW6.86 bil down 63.7% on year. Korea Line revealed its performance in 2007 that the sale marked KW197.1 bil up 71%, with operating profit of KW331 bil, 271% increase on year. Korea Maritime Transport announced its performance in 2007, posting sale KW451.9 bil, ordinary income KW2.4 bil, keeping 23 years consecutive black. STX Pan Ocean's net profit reached KW431 bil ($460 mil) in 2007, compared with KW102 bil a year earlier. Its sales more than doubled to KW4.87 tril and operating profit more than tripled to KW456 bil. STX Pan Ocean had chartered in 298 vessels as of end 2007 compared to 261 vessels at the end of 2006.