To let: large slice of North Korea
by Jonathan Watts in Seoul
Guardian
November 14, 2000The 'hermit' state is opening up with plans for a huge business complex aided by the south
Business tenants wanted: prime 16,000-acre, green-field site conveniently located between two of Asia's biggest capital cities. Communist owners willing to throw in low-paid, highly educated workforce, tax breaks and security by a 1m-man army, but tenants must provide their own roads, rail links and power stations. Local attractions include the world's most heavily fortified border and hours of free propaganda broadcasts.
Such could be the pitch for the Kaesong industrial complex, the envisaged development of a sizeable chunk of North Korean territory with billions of dollars of foreign investment, which was a main reason for a ground-breaking economic agreement between Seoul and Pyongyang - South and North Korea - on Saturday. The two cold war enemies signed a deal to protect investment, end double taxation, open a direct route for financial transactions and establish a panel to settle trade disputes.
For the moment, the Kaesong complex is little more than a twinkle in the eye of North Korea's "dear leader" Kim Jong-il, who has promised the land to his main business partner in the south, Chung Mon-hun, the head of Hyundai Asan. But the plan for the site - an almost undeveloped plain 18km from the demilitarised zone that separates the two Koreas - is fast becoming a litmus test for the entire process of reconciliation.
After decades of isolation that have left its economy in tatters and millions of its people malnourished, North Korea has started opening up to the outside world. Since the summer, a series of meetings between Mr Kim and the leaders of South Korea and Russia and US secretary of state Madeleine Albright have prompted comparisons with the developments that preceded the fall of the Berlin Wall.
But unlike Germany, economics rather than politics is the driving force. South Korean president Kim Dae-jung wants re-unification over a generation because he says the peninsula cannot afford to move quickly in closing the chasm that has opened up in the lifestyles of the two nations. Goldman Sachs estimates Seoul will have to spend $1 trillion (£690bn) to remove this disparity and rebuild its neighbour's shattered infrastructure.
Even the far more robust German economy was dragged into reverse by the $90bn a year cost of evening out a smaller disparity between west and east. For South Korea, which is still recovering from the Asian financial crisis of 1997-98, such a burden could be devastating. Seoul's wobbly financial health has been underlined by the bankruptcy of Daewoo Motors, once part of the country's second-biggest conglomerate, which led to violent weekend demonstrations by about 20,000 workers. Dozens of other firms, including several in the Hyundai group, remain on the brink of collapse.
To achieve a soft landing, the South Korean president is desperate to avoid a sudden collapse of the regime in the north. His "sunshine policy" aims to lure the hermit state slowly out of its shell with the promise of aid and investment.
The north's dear leader has milked this for all he is worth, demanding hundreds of thousands of tonnes of rice from the south, billions of dollars worth of second-world-war reparations from Japan and reportedly $3bn from the United States in return for a pledge to abandon the country's missile programme.
While visits to the north by politicians, diplomats and generals have grabbed the headlines, arguably the most important emissary has been Chung Ju-yung, the octogenarian founder of the Hyundai conglomerate who broke the ice between north and south two years ago by crossing the border with a gift of 500 cattle.
As part of the process of confidence-building - which so far has been synonymous with loss making - Hyundai Asan has pumped $1bn into the North Korean resort of Mt Kumgang. The resort has attracted 310,000 tourists in two years - well short of the breakeven point of 500,000 that it hopes to reach by 2002.
Undeterred, Hyundai Asan is now drawing up even more ambitious plans for Kaesong. According to blueprints, the site will be developed over eight years from an empty plot into a bustling commercial centre of 1,200 firms and 160,000 workers, producing $20bn worth of goods each year. Underlining the policy of economic integration and political separation, the complex will be fenced off and guarded by North Korean troops.
South Korean companies in labour intensive industries such as textiles, footwear and electronic assembly have already applied for space in the complex, where they will benefit from wage costs that are anything from a fifth to a twentieth of those south of the border.
Despite this advantage, no foreign companies are expected to join the first stage of the development, which is scheduled for completion by this time next year. "Its too early for western firms to make a commitment. There are still too many unknowns," said a European diplomat.
Given the uncertainties that still surround the venture, it would be a miracle if the project goes ahead. But several miracles have already occurred in this amazing year for Korea.