Economy

Queen's Visit to Boost ROK-Britain Economic Cooperation

Queen Elizabeth II's four-day visit to Korea April 19th to 22nd is expected to help pave the way for increased trade and investment cooperation between Korea and Britain. The Queen was accompanied by a large delegation comprised of over 50 officials and company representatives who held a conference with their Korean counterparts in Seoul to discuss potential British contributions to Korean financial and corporate restructuring efforts. A separate team of politicians, businessmen, journalists and academics discussed political and economic issues of mutual concern during the "Korea-U.K. Future Forum'' which was held at the Hyatt Regency Hotel during Queen Elizabeth's stay in Korea. Rep. Han Seung-soo of the Grand National Party, president of the forum, and Rep. Kim Sang-woo of the National Congress for New Politics, chairman of the forum, discussed the role of politicians in promoting economic ties between the two countries.

Korea and Britain have become close economic allies over the last two decades in part through their support to each other in times of need. Korean conglomerates funneled a significant portion of their outbound portfolio investment into the London market when it was in dire need of foreign capital during the economic recession of the 1980s.

Likewise, British firms have shown enormous confidence in Korea's recovery by making continued investments in local industries in the wake of the financial crisis of November 1997.

Korea chalked up $4.18 billion in total exports to Britain last year, while total imports from the United Kingdom amounted to $1.76 billion, producing a trade surplus in Korea's favor of $2.42 billion.

As of the end of 1998, British firms had made investments worth $854 million in Korea, a figure which will shortly be augmented by Hongkong and Shanghai Banking Corporation's $700 million takeover of Seoul Bank.

Usable Foreign Reserve Top $56 Bil.

Usable official foreign reserves amounted to $56.49 billion as of April 15th, a $2.04 billion increase as compared with the end of March, according to the Bank of Korea (BOK).

Total official foreign reserves, defined as usable reserves plus the central bank's deposits at overseas branches of domestic banks, increased by $1.93 billion within the first half of April, to reach $59.38 billion. The improvement in the official level of foreign reserves continued through the rest of the month owing to another current account surplus and an additional inflow of foreign capital following further corporate and financial restructuring. The pattern of continually growing foreign reserves has been in place since the end of 1997 when the country was thrust into unexpected financial turmoil. Official reserves hovered at just over $7 billion at the onset of the crisis in November 1997.

The Cheju provincial government signed a $400-million investment agreement April 6th with a British firm for the construction of a deluxe offshore hotel. The marine hotel, to be located one kilometer off Hallim, Pukcheju-kun, will be completed in early 2002.

The agreement was signed by Governor Uh Kun-min and Mel Braithwaite, chairman of the SMB Group, a Singapore-based British gas and oil development and financing firm. The 15-story hotel will have 950 rooms and be linked to the shore by a monorail. It will be specially built to bear tornado-force winds of 48 meters per second, according to officials of the island province.

FDI Totals $2.04 Bil. in 1st Quarter

Foreign direct investment (FDI) rose 250 percent during the first quarter of this year compared to the corresponding period of 1998. According to the Ministry of Finance and Economy (MOFE) investment amounted to $727 million in March, a 199.1 percent rise over the $243 million recorded in the same month last year. The number of FDI cases in March amounted to 141, up 4.4 percent from 135 a year ago.

For the January through March period, FDI amounted to $2.04 billion for the first three months of this year, up a whopping 250.3 percent from the inflow of $572 million in the same quarter last year. Individual cases of FDI totaled 389, up 26.3 percent from the same quarter last year.

All Member Countries to Attend APEC Investment Fair in Seoul

The first APEC Investment Mart to be held in Seoul in June is expected to be a full house, with all 21 members of the Asia-Pacific Economic Cooperation forum attending.

The Ministry of Commerce, Industry and Energy (MOCIE) said as of April 10th, 17 member APEC economies had filed applications for the event and the remaining four, including the United States, have indicated that they will attend and are working on filing the necessary documents.

The ministry hopes the event will attract as many as 2,000 participants -1,000 vendors and investment placement organization officials and 1,000 prospective investors.

Proposed by President Kim Dae-jung during the APEC summit held in Malaysia last November to facilitate investment in the area, the debut event will run June 2nd to 5th at the Convention and Exhibition Center and the conference hall of the adjacent Inter-Continental Hotel in southern Seoul.

Held under the theme, "The New Asia-Pacific: Investors' Choice for the 21st Century,"the four-day exhibition will present the latest information on economic and business conditions in the region's economies, including Korea.

Foreign Real Estate Investment Increases 4.5-Fold to $1.7 Bil.

Foreign investment in Korean real estate has been increasing at a rapid pace since the liberalization of the market at the end of June last year, according to the Ministry of Construction and Transportation April 6th.

In a report, the ministry said foreign investment in real estate reached 2,024 billion won (about $1.7 billion) between June 26th and the end of March this year, about four-and-half times that of the previous nine months. "Foreign purchases in the June 26th-March 31st period amounted to 17 million square meters," a ministry spokesman said. Asked about the reasons for the increased investment in real estate, the spokesman said it was partly the result of the takeover of Korean companies by foreign enterprises. "In addition, the liberalization of the real estate market has meant that foreigners and Korean residents living overseas are finding it attractive to buy land for residential purposes," the official said. Broken down by individual cases, Koreans living overseas bought 419 parcels of land for residential purposes, while foreign companies picked up 307 items of commercial and industrial property, the report showed.

Large conglomerates, or chaebol, will have to reduce their debt-to-equity ratios below the internationally approved level to be more competitive in the international market, said Lee Hun-jai, chairman of the Financial Supervisory Commission (FSC) April 6th. During a breakfast meeting with members of the Korea Chamber of Commerce and Industry, the FSC chairman said that meeting the targeted ratio of 200 percent by the end of 1999 is designed to help the chaebol survive global competition. His statements came on the heels of various reports questioning the feasibility of attaining the goal by the end of 1999 as set by the financial authorities.

Gov't Launches One-Stop Service for Private Investments in SOC

The government inaugurated the Private Infrastructure Investment Center of Korea (PICKO) March 31st to provide private domestic and foreign companies with a one-stop service to better enable them to invest in social overhead capital projects. With a staff of over 30 specialists in the field, PICKO is headed by Lee Kyu-ang, vice president of the Korea Research Institute on Human Settlements (KRIHS), and will be assisted by two representatives from the World Bank who will provide their expertise in attracting private investment.

PICKO will be responsible for conducting project assessment and providing assistance for establishing basic investment plans, offering administrative support and carrying out technical training. In addition to helping line up investment from domestic companies, PICKO will focus its efforts on disseminating information concerning private infrastructure projects internationally to attract foreign investment as well. PICKO's establishment is in accordance with a revision to the Private Infrastructure Investment Act which introduced more transparent and competitive procedures to induce foreign investment in SOC projects.

Gov't Ponders Tax Breaks for Foreign SOC Investors

In a related move, the government also is considering providing tax benefits to foreign companies that invest in social overhead capital (SOC) projects initiated by local governments. The Planning and Budget Commission said April 14th that the government has been making concerted efforts to attract private capital in infrastructure projects and that foreigners should also be invited to participate. Commission officials said they have received strong complaints from local governments that the lack of such benefits is making it difficult for them to attract foreign equity. Under the existing Foreign Invest-ment Promotion Act, such tax benefits are available only to companies that provide industrial support services and introduce industrial high technology into the domestic market.

Should the government decide to accord foreign SOC investors similar treatment, they will receive exemptions of 100 percent on corporate taxes for seven years and discounts of 50 percent for a further three years. At the same time, such investors will enjoy exemptions or reductions in acquisition, registration and income taxes for specified periods, the commission officials explained. At the same time, the commission is reviewing the possibility of regional autonomous bodies pursuing their respective infrastructure projects on their own initiative and taking into account their views in adopting individual SOC programs.

Hanjung Privatization to Go on Public Notice in May

A formal public notice heralding the privatization of Korea Heavy Industries and Construction (Hanjung) through an international auction is to be posted by the end of May.

The Ministry of Commerce, Industry and Energy said that an evaluation of Hanjung's assets is to be completed by May 18th and a notice inviting the submission of tenders will be posted no later than the end of the month. Once the notice is posted, an international auction will be organized for the end of August during which 52.1 million shares, each with a face value of 10,000 won, will be sold off. The shares are presently held by the Korea Develop-ment Bank, Korea Electric Power Corp. (KEPCO) and the Korea Exchange Bank and represent 100 percent of Hanjung's outstanding stock.

Major Korean companies such as Samsung, Hyundai and Daewoo have already shown keen interest in acquiring Hanjung's shares but industry observers believe that it will be difficult for any one party to secure more than 50 percent. Aside from Korean companies, leading multinational companies including General Electric of the United States and Alsthom of France have expressed their intention to participate in the auction. GE said in a recent meeting with senior KEPCO officials that it was seeking to secure a 20 percent stake in the state-run power company.

U.S. Internet Service Providers Target Korean EC Market

The United States Department of Com-merce recently released a outlook report on the nation's Internet and electronic commerce (EC) industries. The report indicates that the Korean Internet market, which is expanding sharply, has been aggressively targeted by the U.S. Internet service providers (ISPs) and forecasts that Korea will have the world's 10th EC market in the year 2003.

However, the continued market entry of American ISPs with their stronger name recognition and superior know-how as well as ample capital will push their Korean counterparts into a tight corner. WEFA, the U.S. economic research institute projected that the Korean EC marketwould expand from an estimated $2.16 billion this year to $9.61 billion by 2003. According to the report, U.S. ISPs such as America On-line (AOL), Yahoo and Altavista already have significant presences in the local market.

Meanwhile, the report added that Korean conglomerates with relatively large capital resources such as Samsung are reportedly are on the verge of entering the business through tie-ups with advanced foreign companies.

Hite Brewery Co., which supplies 50 percent of Korea's beer market, announced April 22nd it had received a $100 million investment from Danish brewer Carlsberg. Under the contract, Carlsberg will acquire a 16-percent stake in Hite by purchasing convertible bonds worth $50.4 million, and become the brewery's second-largest shareholder. Carlsberg will also arrange for $50 million in loans to Hite that will carry a 6.5-percent annual interest rate. As part of the deal, Carlsberg will be granted a seat on Hite's board of directors, company officials said.

Hankook to be first Asian Tire Supplier to Ford of U.S.

Hankook Tire Co. company president Cho Choong-whan said Ford Motor Co. of the United States will use his firm's tires on two new models as of July. The Korean firm will provide Ford with tires bearing the Hankook brand name and announce the size of Ford's annual requirement in June. Hankook Tire beat out leading competitors Michelin and Goodyear to win the Ford order.

Delphi of U.S. to Buy Daewoo Auto Parts Div.

Daewoo Precision Industries Ltd. has agreed to sell one of its automotive components units to Delphi Automotive Systems, Daewoo officials said April 18th. Under the terms of a memorandum of understanding (MOU), exchanged with the United States-based auto parts maker, second-largest Korea conglomerate the Daewoo Group, will sell its auto suspension module division to Delphi for $118 million.

Daewoo Precision Industries plans to use the proceeds from the sale to further its corporate restructuring program. The suspension division, established in 1986 to produce shock absorbers, has regularly posted an annual turnover of about 200 billion won, accounting for 30 percent of Daewoo Precision Industries' annual sales. The sale of the suspension unit will enable Daewoo Precision Industries to focus its efforts on producing such core auto components as DC motors, air bags and automatic transmissions, company officials said.

The officials also said that in an in-house business swap, Daewoo will merge Daewoo Telecom, Kyungnam Metal Co., the aluminum production arm of Daewoo, and Koram Plastics Co. into a single unit by late June. Delphi, a multinational auto component company with more than 208 auto part plants in 37 countries worldwide, has been broadening its reach in the Asian market since its recent spin-off from the U.S. motor giant General Motors.