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  Korea Report - August 2007
  Author : Hwang & Co     Date : 07-09-07 10:44     Hit : 39773    
Topics.
-Taliban released 21 hostages after killing two captives.
-Former Seoul Mayor, Lee Myung-bak, nominated as GNP candidate for Dec presidential election.
-New press reform measure escalated disputes.
-US beef import still in trouble.
-2 Koreas announced summit on August 29-30 on a numerous fuss, but suddenly agreed to postpone to Oct 2-4.
-Torrential rain devastated NK.
-NK cooperates with IAEA to shut down nuclear facilities.
-Korea's export surged for 19 months in a row in double digit.
-Finance Ministry assured no problem on the subprime mortgage in Korea.
-HSBC aims purchasing KEB.
-SEC experience power failure in the plant.
-SK group expand to China, as "second home market"
-US Justice Dept charged Korean Air $300 mil fines.
-KOSPI on the roller coaster in between 1908-1638.
-BOK raised bench mark interest rate to 5%.
-Korean yards posted healthy earning in second quarter.
-World Shipbuilding industry is wrapped by the competition in limitless expansion.

GOVERNMENT AND SOCIETY

Taliban militants kidnapped 23 Koreans on July 19, including 16 women, on an aid mission from a Christian church in suburban Seoul. The leader of the group, Bae Hyung-kyu, 49, was killed on July 24. On July 30, Shim Sung-min, 29, became the second hostage to be executed. The Taliban have repeatedly threatened to kill the remaining hostages unless their demands for the release of Taliban prisoners are met by the deadline they set. The Taliban warned that 2 female hostages were sick and that they could die, saying they would not accept any medicines and that the only way to save them was to accept their demand for a prisoner swap. The Taliban demands at least 8 of its prisoners be released in exchange for the remaining hostages. Taliban released 2 sick female captives on Aug 13, the first safe release of Korean hostages. A total of 12 South Korean hostages including 2 men were released in groups by the Taliban on Aug 29, after the insurgents agreed to release all 19 captives. The remaining 7 were also freed Aug 30. 42 days ordeal was over.
The Arab League and Al-Azhar, the premier Sunni institution of learning, and Arab League Secretary General Amr Mussa condemned Taliban¡¯s killing of 2 Korean hostages and called for the others to be immediately released. Human Rights Watch called on Taliban to immediately release the hostages, saying their abduction constituted a war crime. Foreign ministers of 10 Southeast Asian nations during their ASEAN Regional Forum condemned the Taliban for killing 2 Korean hostages in Afghanistan, urging the insurgents to immediately release the remaining 21 captives.
Afghanistan government repeatedly confirmed not to release any prisoners amid continuing threats by the Taliban to kill the remaining 21 Korean captives, vowing not to bow to the Taliban's demands for a prisoner swap. USA agrees on no concessions to terrorists. 2 governments have also agreed that they will not launch military rescue operations without Seoul's consent. USA and other countries strongly criticized Afghanistan government earlier this year when it released 5 Taliban prisoners to win the freedom of an Italian journalist held hostage.
Korean side and Taliban announced that, in return for the release of hostages, Korea's 200-strong troops will be pulled out by the end of the year, all Christian missionary activities in Afghanistan will halt and all Korean civilians will leave the country. But these demands were those already pledged by the Korean government from the start of the hostage crisis. Taliban was fully aware of Korea's inability to help release its jailed fighters in return for the hostages. Then, Japan's Asahi Shimbun reported that Korea paid $2 mil to Taliban after Afghan mediators to end the six-week ordeal. Germany reportedly spent $10 mil for the release of 2 technicians abducted in Iraq in Jan. Italy also reportedly paid $2 mil to save a photojournalist held by the Taliban in March. But no related government ever confirms such ransom deals. Seoul government flatly denied the rumor of paying ransom.
The highest accomplishment for the Taliban is that "it acted like a government and that it was literally acknowledged like one over the world." Taliban maximized the use of media by excluding the Afghan government from the picture and negotiating with Korean government on equal terms.
The Seoul government faces international criticism for dealing directly with the Taliban, but the government kept firm stance that saving 19 lives was the right thing to do. The Seoul government said it may seek compensation from the families of the hostages and the church that organized the mission, for expenses involved in negotiating their release.
 
Former Seoul Mayor Lee Myung bak was nominated as the Grand National Party's candidate to run in the presidential election in Dec 19. He defeated former party leader Park Geun hye by the slight margin of 1.5%, capping a year of bitter campaign which threatened to split the party. Park accepted loss and responded with a pledge of full support. Lee has taken a tougher stance toward NK and vowed to enhance Korean's alliance with USA. He has urged easing economic regulations to spur investment and create more jobs. An overwhelming 70.8% of the 185,080 electorate cast ballots in the GNP presidential primary in 16 cities across the country. As former CEO of Hyundai Construction, Lee's economic prowess is seen as the main reason for his popularity.

The embattled Uri Party is set to reunite with a splinter group, including the 58-member Uri Party and the 85-member United New Democratic Party, and plans to launch a new political party in the run-up to the Dec presidential election. But political analysts were skeptical as to whether it would be able to regain public support as it would mainly comprise former and current members of the deeply unpopular Uri party. The new party would be the country's largest parliamentary bloc, followed by the GNP with 129 seats of the 299-member in the parliament. The Uri Party, launched in 2003 by President Roh Moo hyun and liberal minded politicians, closed its doors Aug 18 amid rock bottom popularity ratings, as Uri members approved a merger with the United New Democratic Party, going against its initial pledge to last for 100 years.

The dispute is escalating between the media and government as the new press reforms measures, initiated by President Roh after he was inaugurated in 2003, has taken place. Among its measures, there are plans to remove reporters' quarters, provide all media equal access to briefings, and restrict reporters' access to offices of government branches.
The nation's largest newspaper association, joined by 48 media outlets nationwide, demanded the immediate withdrawal of the government's ongoing press "reform" measures. Reporters insisted that they should be allowed to conduct telephone interviews with government sources, that the government must continue to hold press briefings which specify the date that media may release information, along with off-the record briefings, and that reporters should be able to visit the offices of governmental employees when they have appointments.
GNP stepped up its criticism of the government's press reform measures, vowing they would fix the system if the party wins the Dec presidential election, claiming the government's idea to consolidate press rooms was worse than "dictatorship like" and submitted a motion to oust the head of the Government Information Agency. Liberal political parties also joined an escalating protest against the new measures.
The International Press Institute sent a letter to President Roh, warning him that it may put the nation back on its "watch list" of countries where media freedom is restricted, as the measures seriously damages freedom of the press in SKorea, limiting the public's right to know. Only 4 nations, Russia, Venezuela, Zimbabwe and Ethiopia, are on the list. The government responded the IPI's objections are based on false information, insisting ¡°No other countries allow journalists to roam around government offices without prior approval.¡±
The reporters refused to step into a new briefing room built under the new media policy, when the Foreign Ministry conducted a briefing on the latest release of Korean 19 hostages in Afganistan.

US President George S Bush signed the Implementing Recommendations of the 9/11 Commission Act of 2007 to allow expansion of a visa waiver program to allies, including SKorea, the Czech Republic and Estonia. Nationals from countries in the program can visit US territory for up to 90 days without visas.
Korea halted inspections of all US beef imports on Aug 1, as the quarantine authority found a box of vertebral columns among 1,176 boxes totaling 18.7 tons of beef imported on July 29. The ministry said it could place an import ban on American beef again if Washington fails to take substantial prevention measures. Seoul and Washington agreed in Jan 2006 to allow importation of only boneless meat from cattle aged 30 months or younger. Korea was among more than 60 countries to ban US meat in Dec 2003.
Various civic groups in Korea insisted to stop the import immediately, accusing the government that its move to halt inspections only gives Washington more time to make an excuse of the latest mishap. USA has urged Korea to change its meat quarantine guidelines to permit imports of bone-in beef. USA threatened that normalizing the beef trade with Korea may be crucial to winning congressional approval for a bilateral FTA.
Korean authority resumed inspections on Aug 27, after the US authorities explained that a meat-processing facility sent beef with banned substance to Korea, by simple human error, and the US meat plants promised to install additional inspectors to check the contents before they are boxed.
 
The City of Incheon signed a formal agreement with a consortium led by US firm Portman Holdings to build the nation¡¯s tallest building, which will be built in the multi-billion dollar free trade zone on the city¡¯s reclaimed land. Construction of the 151-story skyscraper, named ¡°Incheon Tower,¡± will begin this year and be completed by 2013. The Portman consortium, including SKorean builders such as Samsung Corp and Hyundai Construction will spend KW17 tril ($18.1 bil) on the project.
 
An air route is to be launched between Korea's Gimpo Airport and Shanghai's Hong Qiao Airport sometime at the end of this year. The new route is to run up to 16 flights daily. The advantage of 2 airports lies in their location, as they are both closer to the main business districts of Seoul and Shanghai than the international airports in Incheon and Pudong. The number of passengers from Incheon International Airport to Shanghai's Pudong International Airport has shown annual growth of 28% to 1.2 million passengers as of last year.
 
Over half of the young children in Korea use the internet either for education or fun even before they enter preschool. 52% of children between the ages of 3-5 use the internet. The percentage of toddler internet users exceeded that of users in their 50s. Infants were found to be online for an average 4 hours a week, going online for playing games and watching films. It also found 87% of the young child users use the internet for education.
 
Violinist Chung Kyung-wha, 59, has newly joined the faculty at the Julliard School in New York City, along with 7 other renowned musicians including cellist Richard Aaron and violinist David Chan.
KJ Choi, 37, has jumped into the top 10 in the world men¡¯s golf rankings after he finished second in the tournament at The Barclays tournament during Aug 23-26, moving from 11th up to eighth, and becoming the first Asian to shine in the elite group.

NORTH KOREA AND NATIONAL DEFENSE

2 Koreas announced that their leaders will hold a second inter-Korean summit in Pyongyang Aug 28-30 to promote peace and cooperation on the peninsula. The meeting comes 7 years after the first landmark summit held in Pyongyang in June 2000 between the NKorean leader and former SKorean President Kim Dae-jung.
USA announced its full supports to the second summit meeting between 2 Koreas. The Japanese hoped that the dialogue between the Koreas would continue to ease the tensions on the peninsula. China expected "positive results" from the summit. Russia hoped the summit would "give a new political impetus to the process of settlement of the Korean nuclear problem."
The GNP declared its opposition to the planned inter-Korean summit, labeling it as "untimely and inappropriate." GNP suspects that President Roh pushed for the summit with intentions to tap public sentiment for the liberal camp before the Dec 19 presidential election.
Liberal parties unanimously welcomed the agreement to hold a summit, highlighting the need for bipartisan cooperation. Former President Kim Dae-jung welcomed the news that the second inter-Korean summit will be held 7 years after he signed the June 15 joint declaration with the NKorean leader.

At the peak of every fuss, South and North Korea suddenly agreed to postpone their summit to Oct 2-4, due to recent floods that have devastated the already impoverished North.
 
Torrential rain that started Aug 7 has devastated NK. Preliminary statistics reveal the destruction of 22,400 homes, the inundation of 63,300 housing units, the disconnection of railways at 120 points and the flooding of 20 coal mines. Several hundred residents were reported dead or missing in the floods, certainly one of the worst since the 1990s. NK is likely to face a shortfall of more than 400,000 of food this year due to the floods, in spite of massive outside aid. Devastating floods are believed to have destroyed up to 14% of the North's farmland.
More than 14 nations, including SKorea, USA, Japan, China, Russia, Italy, Germany, France, Australia, Netherlands, Sweden, Norway, Finland and Ireland, have committed flood relief. The UN's World Food Program is set to assist with emergency food supplies, 4,000 tons of flour, beans, vegetable oil and sugar. The Spiritual Awakening Mission and World Vision sent $200,000 worth of medicine and other necessities sometime. The International Red Cross is appealing for $5.5 mil in aid to help NK recover from the floods. Australia provides $1.6 mil worth of food aid to NK through the World Food Program.
About KW7.1 bil ($7.5 mil) worth of emergency relief aid was immediately shipped from SKorea across the inter-Korean border to NK by 200 trucks. SKorea will also send building materials and equipment worth KW37.4 bil ($39.7 mil) to NK to help rebuild houses and roads after floods ravaged the impoverished country.
Blame should fall on the NKorean leaders, particularly with the short sighted drive to increase food output decades ago, and the neglected improvement of agricultural infrastructure by diverting resources to nuclear armament. Back in the 1970s, NK vigorously pushed agricultural production increases by instructing collective farms across the country to create terraced paddies at all conceivable locations. But heavy rains soon washed away weak terraces and embankments. Rebuilt fields suffered the same destruction in the next rainy, repeating disasters left farmlands vulnerable to inundation.
 
Seoul has decided to postpone its field drills military exercises in order not to provoke NK ahead of an inter-Korean summit. However, SKorea and USA held their annual computer based joint war games as scheduled during Aug 20-31 with participation of about 10,000 US soldiers, but on a low key note. The war game is a computerized command post exercise of 2 militaries to simulate the allies' joint war scenario, and to demonstrate the government's emergency preparation and war implementation plan. Some 500 key US soldiers entered the Korean Peninsula, but most of them will stay off the peninsula's coast. NK has condemned the allies' actions as a preparation to invade the North. It threatened to do its utmost to prepare "corresponding strike means" in response to the military drill.

NK has cooperated with UN nuclear inspectors, having shut down 5 key facilities, and allowing access to nuclear material. The report by IAEA confirms that the agency has monitored the shutdown of a nuclear fuel fabrication plant, a reprocessing plant, a 5 megawatt experimental nuclear reactor, and a 50 megawatt reactor at Yongbyon, and a 200 megawatt reactor in Taechon.
 
ECONOMY AND POLICY

Surging exports in the second quarter propelled the Korean economy to its fastest quarterly growth in almost 4 years. GDP rose 2.2% in second quarter up from an initial estimate of 1.7%, marking a turnaround from the first quarter's 0.9% contraction. BOK forecasts that the growth rate will be around 4.7% in the second half.
Korea's budget deficit widened in the first half of 2007 as it boosted spending on roads, bridges and other infrastructure to stoke economic growth. The government posted a budget shortfall of KW6.1 tril ($6.5 bil) in the period. That was more than a KW200 bil deficit in the first half of 2006.
 
Korean exports grew 14.4% on year to $31.2 bil in Aug, thanks to strong overseas demand for autos, steel and general machinery. Imports expanded 9.8% to $29.7 bil, resulting in a trade surplus of $1.5 bil. It marked the 53rd straight month since April 2003 that Korea reported a trade surplus, and the 19th month in a row that exports grew by double digits.
Korean exports of information technology goods grew 13.6% on year to a total of $11.14 bil in Aug, boosted by brisk sales of mobile phones, flat panels and semiconductors. Imports of IT goods stood at $5.41 bil, up 9.7% on year, bringing the IT trade surplus to $5.72 bil.
 
Korea's current account surplus widened to US$1.6 bil in July up $360 mil from June as the income account swung to the black, offsetting a snowballing service account deficit. It was the third consecutive month in which a surplus was posted.
Korea posted the third-largest service account deficit last year among the member states of the OECD. The country's service account has been in the red for 17 consecutive years with the exception of 1998. The deficit reached a record high $18.8 bil last year, which was the third largest among the 30 OECD members, following Germany with $48.8 bil and Japan $20.1 bil deficit.
 
The Bank of Korea is to restrict foreign currency lending in an effort to curb the appreciation of KWon. From Aug 10, the central bank will only permit foreign-currency loans for the purposes of overseas spending and facility investment within the country. The restrictions will apply to banks, insurers and other organizations that deal with foreign currency loans. Total outstanding foreign-currency loans to local recipients came to $44.1 bil at the end of June this year, gaining $2.1 bil. KWon has climbed 11% against USDollar in the past 2 years.
 
Finance Ministry assured that the subprime mortgage loans in USA account for 12% of the overall US mortgage market and a mere 1% of the country's total financial capital, and Korean institutes do not have large stakes in the American housing market, estimating Korean investment in assets related to US subprime mortgages to be around KW800 bil ($864.23 mil), with its effects very limited. It also assured to set up a separate task force to monitor any warning signals. BOK did not take any official measures to calm the credit concerns, while the US Federal Reserve pumped a total of $62 bil into the shaky American lending market during Aug 9-10.
 
Finance ministry warned that Korea should prepare for the possibility of a rapid withdrawal of funds from the yen carry trade, saying that the subprime loan crisis in USA is showing signs of spreading to the yen carry trade, including flight to quality, referring to investors liquidating riskier assets to redirect funds into safer investment vehicles. It stressed that with $5-6 bil in yen carry funds invested in Korea, a rapid liquidation of related assets would have a limited direct impact on the local economy. Yen carry funds invested across the world are estimated at $200 bil. The ministry said the amount of yen carry funds in Korea amount to approximately 2% of the country's foreign currency reserves, and even if developments in the yen carry trade throw global financial markets into turmoil, stable macro economic conditions and large foreign currency reserves have well prepared the country to deal with global imbalances.

 The Financial Supervisory Service decided to appoint William Ryback, deputy chief executive of the Hong Kong Monetary Authority, as a special adviser to the top watchdog for 6 months starting in Oct. He was with the US Federal Reserve System as a bank supervisor during 1986-2003, and the Board of Governors representative on the Basel Committee on Banking Supervision 1986-1994.
The Industrial Bank of Korea aims to increase its assets to KW220 tril ($238 bil) and will augment its market capitalization to KW20 tril by 2011. The state-run bank, the nation's fifth-largest lender by assets, is fast catching up with the fourth-ranked Hana, helped by strong growth in lending to small and medium sized businesses. The three largest are Kookmin, Shinhan and Woori Bank.
SC First Bank, a Korean unit of Standard Chartered Bank, is reported in advanced talks to buy Hannuri Investment & Securities, a Seoul based brokerage, beating the country's top lender, Kookmin Bank. Kookmin Bank has been pushing to buy the securities firm after dropping a bid for a small sized local brokerage, KGI Securities, earlier this year. Hannuri, unlisted, is 93% owned by foreign investors, with US based JDK Investment being the top shareholder.
Kookmin Bank is challenged in its growth plans as Korea's largest commercial lender sees its M&A plans hurdled by foreign peers. Most recently, HSBC announced that it is holding takeover talks with Lone Star Funds over the Korea Exchange Bank, which Kookmin failed to take over, because of ongoing legal disputes. It has also become known that the Standard Chartered Bank started takeover talks with Hannuri Investment & Securities, in which Kookmin had been harboring acquisition interests. Kookmin Bank reportedly argued that the Korean retail banking market is far too crowded for another fiercely competitive foreign player.
Hana Financial Group, Korea's fourth biggest financial firm, will buy a controlling stake in an Indonesian bank. Hana's main banking unit will buy 60.97% of PT Bank Bintang Manunggal. The acquisition will help Hana expand in Indonesian economy forecast to grow 6.3% in 2007, as profitability slows in Korea. 
 
The Hongkong Shanghai Banking Corp is reportedly willing to purchase 51% stake in the KEB, although the legality of Lone Star's original takeover of KEB in 2003 is being questioned by Korean prosecutors and financial regulators in Korea. HSBC has failed in its 2 attempts to acquire a Korean bank. In 2004, HSBC was beaten by Citigroup in the battle for KorAm Bank, the sixth largest lender. The following year HSBC appeared to be in favorable position to buy Korea First Bank, the seventh largest, but was outbid by a $1.8 bil offer from Standard Chartered. HSBC has 11 branches in South Korea and is struggling to compete with bigger rivals.
The Financial Supervisory Service made it clear that the regulatory agency will not approve the acquisition of the KEB by the Hongkong Shanghai Banking Corp before a court ruling.
 
The outstanding balance of equity-type mutual funds grew 53.95% from $53.4 bil at end 2006 to $82.3 bil in the first half of this year, outpacing those of USA, UK and Japan.
Local banks kept their bad debt ratio at a record-low in the first half of the year, accounting for 0.78% of total outstanding loans, down 0.06% from the end of 2006. Bad debts amounted to KW7.8 tril ($9.3 bil) as of end June.
 
Japan¡¯s central bank decided to keep interest rates unchanged at a 0.50%. China¡¯s main stock index climbed above the 5,000-point level for the first time on Aug 23, led by property shares and speculative third-tier stocks.
 
Korea plans to increase its self-sufficiency rate in oil and gas to 28% within the next 9 years by expanding offshore production. The government raised its mid-term production capacity goal of all gas and crude to 20% from 18% by 2013, while boosting its self-sufficiency rate to 50% for soft coal and 30% for iron ore.
Daewoo International announced that its gas reserves in Myanmar were officially confirmed to have a 5.4 - 9.1 tril cuft of natural gas. The reserve in 3 gas fields in the A-1 and A-3 areas was found equivalent to around 100 million tons of LNG, 10 times Korea's annual consumption.
The Korea Institute for Defense Analyses said the Air Force, mainly due to skyrocketing oil prices, has curtailed the training hours of pilots to below the minimum hours required to maintain their skills.

 CHAEBOL

The Korea Chamber of Commerce and Industries called on the government to abolish regulations that keep conglomerates away from the banking industry, saying that the country's financial sector needs injection of commercial capital to compete on a global stage. As commercial firms are prohibited by law from acquiring or operating banks, 6 out of major banks in Korea have been virtually taken over by foreign investors with the exception of state-owned Woori Bank. It also claimed that about half of the OECD member countries, including the UK, France, and Germany do not ban commercial firms from buying into banks, while USA and Italy virtually block commercial firms from operating banks.
 
Samsung Electronics (SEC), the world's largest NAND chipmaker with global market share exceeding 40%, resumed full operation of its Giheung plant for the production of NAND chips from Aug 4, quickly recovering from a power failure for 21 hours and 30 minutes, caused by a malfunctioning switchboard from an overheated transformer, that struck its main chip plant on Aug 3. Damage from the accident is estimated to reach about KW40 bil ($43.3 mil).
SEC, which recently vaulted past Motorola to become the No 2 mobile maker, is expanding its R&D centers in Poland, India and China. In the second quarter, SEC's global market share reached 14.2%, while Motorola took up only 13.5%, while the market leader, Nokia, has a dominant 38%. SEC's increased level of R&D investment in emerging markets as an aggressive move to take on Nokia and Motorola.
SEC decided to build a fourth-generation mobile communications network, WiBro, in New York City to expand its business in USA. WiBro provides users with 100-Mbps high-speed internet access while in motion. When not in motion, WiBro is capable of 1 Gbps, 10 times faster than optical LAN networks. After the network is complete in New York, WiBro would cover about 100 million people in the northeastern USA by 2008.
SEC has extended its sponsorship contract with the US National Football League for 3 years. SEC will be allowed to use the Super Bowl and other NFL logos in its publicity campaign.
 
As the Korean mobile telecommunications market is nearly saturated, over 42 million people out of Korea's population of 48 million subscribe to mobile phone services, SKTelecom, the nation's leading mobile carrier, plans to strengthen its presence in the Chinese telecom market, by converting $1 bil bonds purchased from China Unicom, the second-largest mobile phone carrier in a market, into shares next month. SKT will become the second-largest shareholder of China Unicom after Unicom Group, which currently holds 76.5% of shares. SKT's overseas activities include a wireless service joint venture Helio, with Earthlink in USA, and a mobile service, S-Fone, in partnership with Vietnam's SPT.
SK Energy Holdings set the target to making China the "second home market" for the long-term growth of Korea's largest oil refiner. SK Energy presently operates 11 mainland China offices and 3 branch offices, investing $52 mil so far. It saw KW500 bil ($530 mil) in sales revenues from China last year and aims to increase the revenues by 10-fold to KW5 tril by 2010.
SK Corp, holding company of SK Group, decided to acquire the 15.3% stake in SK Energy in additional to its 17.1% holding, to fulfill the requirement in Fair Trade Act for being a holding company of the group.
 
Hyundai-Kia Automotive Group's US market share broke the 5% mark for the first time in June.
The number of automobiles produced by HMC registered in the country has broken the 8 million mark for the first time, accounting for more than 66% of all automobiles registered in the country. The number of HMC's passenger cars, commercial vehicles and vans were 5.8 million, 1.7 million and 507,000, respectively.
In July the number of imported passenger cars rose to over 230,000, 2% of the passenger cars registered in the country for the first time.
 
POSCO started the construction of a cold rolling steel mill Vietnam, on the schedule for completion in Sept 2009. It is the first part of the company's $1.13 bil project for building 2 rolling mills in the Phu My Industrial Park. The $490 mil plant, with its production capacity of 700,000 tons of cold-rolled coil and 500,000 tons of full-hard steel products, will be the largest plant of its kind in Vietnam.
POSCO and KEPCO have formed a partnership to develop hydrogen fuel cell generators, produce, as well as work together to market the products. POSCO will also supply the KEPCO subsidiary Korea South East Power with 2 fuel cell generators with 1.2 megawatt of capacity by 2008. Earlier this year the steel maker formed a strategic partnership with FuelCell Inc, the world's first producer of commercial scale fuel cell generators, as part of its program to develop related technologies.
Korea Electric Power Corp (KEPCO), the country's dominant power supplier, signed a cooperation agreement with GE Energy, which will make 2 companies to cooperate on power generation, distribution, and transmission projects. The agreement is also to allow KEPCO to maintain and repair power plants built overseas with GE's equipment. They also discussed ways for KEPCO to acquire troubled power plants provided by the American company. KEPCO aims to generate KW3.8 tril ($4.1 bil) from overseas investments by 2015. Overseas earnings accounted for less than 1% of the company's total sales last year.
 
The US Justice Department charged Korean Air and British Airways with price-fixing on passenger and cargo flights. Both airlines agreed to plead guilty and to pay $300 mil each in criminal fines. The US District Court ruled Korean Air conspired with competitors to fix rates on international air cargo shipments from at least Jan 2000 to Feb 2006. The 2 airlines are among the 10 largest international cargo carriers, with their combined US related cargo revenues believed to have totaled more than $1 bil annually during the period.
Korean Air won the contract to renovate around 100 US fighter jets by 2013, expanding its aircraft repair business. The nation's largest air carrier acquired the bid to renew a wide range of electronic and mechanical parts of the US F 16s stationed in the Asia Pacific region, aiming to extend the life span of fighter jets by some 2,000 hours.
 
LG Household & Health Care, Korea's largest maker of home cleaning products, plans to buy Coca Cola Amatil's unprofitable bottling business in Korea for about KW280 bil ($297 mil). The purchase gives LG access to a KW2.8 tril beverage market and a nationwide distribution network. Manufacturers are focusing on products including health drinks, spring water and tea to revive sales growth as competition increases and demand for traditional soft drinks wane. Beverage makers including Lotte Chilsung Beverage had 44% of SKorea's beverage market in the first quarter, followed by Coca Cola Korea with a 16% and Haitai Beverage with 14% market share. 
 
Korean builders have won more than $20 bil worth of overseas construction orders during the first 8 months of this year. The orders amounted to $21 bil, exceeding an annual high of $16.4 bil recorded last year. It is forecasted the figure would grow to $24 bil by the end of this year. HHI ranked first in terms of overseas contracts by winning $3.15 bil worth of deals. Doosan HI&C came next with $2.84 bil, trailed by GS E&C with $2.58 bil.
A consortium of 13 Korean builders has signed a MOU worth $25 bil with the Kurdistan Regional Government to improve infrastructure in the northern Iraq. The project is to build dams, highways and houses in Iribil, where about 1,200 SKorean troops are stationed. The Korean consortium includes Hyundai E&C, POSCO engineering, Sungwon Corp, Hanshin Construction and Dongmoon Construction.
Hyundai E&C received the order from Saudi Electricity authority for power transmission project worth $120 mil for the completion in 25 months.
GS E&C signed the contract with Egypt National Petroleum to build refiner in turn key basis worth $1.8 bil, with option of additional works worth $140 mil. The project is the biggest single plant Korean contractor ever won. It has the capacity to refine 150,000 barrel a day. The work will commence in Sept to complete by Oct 2011.
 
Hynix Semiconductor, the world's second largest memory chipmaker, has signed a contract with memory technology developer Innovative Silicon to use its Z RAM technology, short for zero capacitor RAM, aiming to reduce the size of DRAM chips and production cost.
Renewable Energy Corp, a Norwegian maker of solar-power components, agreed to build a 2.5-megawatt electricity plant in Daegu City. Investment in the unit will be more than $13.7 mil. HanBit Solar, which is held 60% by Renewable Energy, is expected to own the facility for 15 years before handing control to Daegu City.

MONETARY AND ECONOMIC INDICES

Korea Composite Stock Price Index fluctuated on the roller coaster with repeated plunges and rebounds. It started the month at 1856, advanced to 1908, dumped to 1638 and recovered to 1873 at the end. The Korean stock market saw the second largest gains after that of China in the first 7 months of this year, rising 34.77%, while China's main market rose 67.11%. But in Aug, stocks were hit hard by global concerns over rising US subprime rate mortgage defaults. KOSPI continued to plunge in third week off 10% weekly decline, the worst since the week of the Sept 11 terrorists attacks. Then KOSPI were rebounding from their biggest fall, after the government pledged to provide cash to banks amid a global credit crunch, and 2 Koreas announced the summit meeting for the first time in 7 years.
Foreign investors have net-sold KW22 tril of local shares over the past 2 years, switching from a two-year long buying rally during May 2003 - July 2005, when the investors net purchased KW28.27 tril worth of local shares. The share of foreign-controlled market capitalization was brought down to a near-six-year low of 33% from its peak of 44.14% on April 26, 2004.
 
KWon exchange rate has been weakened throughout the month, in the box 925-922-950-938 against USDollar. KWon experienced its big fall as investors bought up USDollars because of growing anxieties over the global credit crisis. The Japanese yen also strengthened against KWon to above KW800 per JY100, its highest level in 5 months, as panic stricken investors purchased JYen to repay their Japanese loans.
As of the end of Aug, the country's foreign exchange reserves reached $255.3 bil, up $460 mil from July.
BOK unexpectedly raised the benchmark interest rate by 0.25% to 5% in a bid to prevent further growth in the money supply from spurring inflation. Following the rate hike, local banks moved swiftly to increase interest offered on deposits. Kookmin Bank is to raise the rates by 0.1% to 0.2%. Shinhan Bank will raise deposit rates by 0.25%. The certificate of deposit interest rate has reached a six-year high and is expected to rise further. The interest rate on the 91-day CD has jumped to 5.27% as of Aug 27, the highest in 6 years. Mortgage loan interest rates are set at a low-6% and high-7% range. The yield on 3 years corporate bonds has been ascending from 5.58% to 5.85%.
Annual inflation slowed to 2% in Aug after rising 2.5% in July. The gain was the smallest increase in 7 months. BOK's target range is between 2.5-3.5%.
Korea's jobless rate rose in July to 3.4% from 3.3% in June.

SHIPBUILDING AND SHIPPING

Korean shipyards clinched 43% of the world's new shipbuilding orders in the first half of this year. By value, the new orders are worth $33.2 bil, up 51% on year. The backlog also rose to a record level, amounting to 4.4 million GT or 1,346 vessels, which should keep the dockyards busy for 4 years to come. 3 top builders, HHI, SHI and DSME, took a combined 40% share of the global market.
Korean yards predict record earnings this year on the back of profitable construction of very expensive vessels. HHI reported that its second quarter net profit more than doubled, earning KW417.5 bil ($449 mil), compared to KW192.4 bil in the same quarter last year. HMD has reported second-quarter net profit KW289.9 bil ($313.76m) up 343% on year, on the revenues of KRW 689.17 bil, a 21% hike. Operating profit marked KW84.1 bil, up 66.7% on year. SHI reported that its second quarter net income more than quadrupled to a record KW130.2 bil. Hanjin posted its sales of KW1.58 tril in first half from KW1.15 tril last year, operating profit of KW219.1bil up 4 folds on year, net profit of KW77.5 bil compared to KW45.5 bil last year. STX posted its sales of KW462.7 bil, operating profit KW18.9 bil and net profit KW57.4 bil in second quarter, compared to KW403.4 bil, KW16.2 bil and KW636 mil loss respectively in first quarter.
As of June, 16 new domestic yards are building or have secured orders to construct 410 vessels totaling 6.98 million CGT. This is about 13% of the 46.72 million CGT being built and secured by all Korean yards. 
Angola LNG has chosen the consortium of NYK bulk ship, Mitsui Corp and TeeKay Shipping for the operation of 4 x 160K LNG vessels which will presumably be ordered in this Sept and delivered in 2011 by SHI.

While Chinese shipbuilding Industry kept swiftly swelling their volume, Korean and Japanese yards are also cautiously expanding their capacity. HHI plans to build its 10th drydock of one-million-dwt annual capacity, 640 m x 92 m, for the completion by Jan 2009.
DSME is set to expand its shipbuilding capacity further by constructing in China a mega-size floating dock of about 500 m long to be capable to construct 10-15 Suezmax a year for delivery in early 2009. DSME has presently 2 dry docks and 3 floating docks. The third floating dock of 361.5 m x 75 m, which was built only last year.
SHI has recently commissioned at Cosco Shipyard in Dalian for 427 m x 82 m dock, the world's largest floating dock, before DSME complete a little bigger than SHI¡¯s. Hanjin started its shipbuilding in Subic, Philippine. Daehan Shibuilding had the first keel laying ceremony in their new dry dock, operating its yards in full swing. They plan to complete No 2 and No 3 dock in 2008.
These moves are just the tip of the iceberg in the expansion of shipbuilding capacity in Japan and Korea. A number of ships are now being built on land rendering unlimited capacity. In Japan, repair yards have turned to newbuilding and mothballed facilities have been brought back to life. On top of all this, there have been tremendous production gains brought about by modern techniques and subcontracting hull-block construction to Chinese yards.
The sky rocketing newbuilding prices have continued to justify the rising capacity, however, people have predicted market could be oversupplied for many years.

HHI received new orders worth $11 bil so far this year, achieving more than 80% of its full year target. HHI won the orders from ER Schiffart for 8 x 13,100 teu, SCI 4 x 110K aframax tanker, Glencore's ST Shipping& Transport 2 x 110K LR2 tanker and 2 x 95K LR2. Hyundai Samho contracted with Delta Tankers for 4 x 159K tankers.
SHI has clenched orders worth $14.1 bil so far this year, achieving 94% of its full-year target of $15 bil. SHI announced that it has received a $270 mil order to build 2 large passenger ships for a Stena, which the yard hopes to be a stepping stone for its leap into the cruise market. In addition, SHI had the orders from China Shipping Container Lines for 8 x 13,296 teu, unidentified European owner 8 x 13,300 teu, Peter Dohle 4+4 x 12,600-teu, Claus-Peter Offen 5 x 12,500-teu, TeeKay 2 x 109K tanker and Finaval 4 x 115K aframax.
DSME successfully completed the gas trial of its first 210K class LNG carrier for Pronav, proving its own N2 blanking system, reliquifation system on board and emergency gas burning system. DSME agreed with Claus-Peter Offen to build 6 x 13,200-teu, a German owner 4 x 8400 teu, Sea Castle 2 x 4500 teu and Navios Maritime 2+2 x 180K capsizes bulkers.
Hanjin Heavy Ind, the father of Korean shipbuilding industry, celebrated its 70 years anniversary of its foundation. Hanjin contracted with NSC Schiffahrts gesellschaft to build 4 options x 12,800 mega-boxships in Cebu.
In addition to its successful winning of LNG ships, STX won the order for jumbo box carrier of 12,400 teu, converting its Chinhae yard as the site to build high value added products. STX got the orders from Niki Group for 9 x 12,400 teu giant boxships, Prime Marine Corp 4 x 74K LR1 products tankers, unidentified European 4 x 58K bulker and STX Pan Ocean 2 x capsizes. STX Dalian had STX Pan Ocean for 2 x panamaxes and National Energy Transport 6 x 57.7K bulker.
SLS won the order from Ocean Tankers for 4 x 50K handy-maxes, SPP with Overseas Shipholding Group 4 x 73.5K LR1, Daehan with Zela 2 x 180K bulker, C&Heavy Industries with Target Marine 4 x 82K bulkers, Jinse with Arne Blystad 10 x 32K bulker, Orient with Jin Yang Shipping 5 x 33.3K log carriers.
 
Korea Line Corp enters VLGC sector, acquiring the 78K cbm DL Calla (ex- Gaz Energy, built 1990) from Daelim Corp for $50.5m. The vessel will be bareboat chartered back to the seller for 9 years, which will be relet to HMM until the end of 2015. Daelim still controls 5 LPG carriers of less than 4K cbm and 3 newbuildings of between 5-6.5K cbm under construction in Japanese yard. Cash rich KLC has also acquired 6 x 58K resale supramax-bulker newbuildings from Parakou Shipping for $44-45m each, which will be delivered in 2009 -2010 by STX Dalian.
 
Hanjin Shipping posted the sale of KW3.194 up 10% on year in second quarter, with operating profit KW3.11 bil down 41.4% and net profit KW1.83 bil down 80.7%, citing increase of cargo handling cost, transportation expenses and charter rate.
STX Pan reported net income soared from $4.55m a year ago to $118.3m in second quarter, on the revenues of $1.128 bil up 91%.
HMM posted the first half sale of KW2.324 tril, same as last year, operating profit KW117.9 bil up 29.6%, net earning KW113.4 bil down 20.3% on year due to exchange rate.