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  Korea Report - June 2008
  Author : Hwang & Co     Date : 08-07-09 16:01     Hit : 46864    
Topics.
- Amid rallies against US beef import, government renegotiated with USA to make the stricter limit on the import.
- Government posted new import condition in its gazette and quarantine inspection on US beef starts.
- 4 months old Lee administration had a nose diving approval ratings and GNP suffered a crushing defeat in by election.
- NK submitted the declaration of nuclear program.
- People starts to concern stagflation in second half in Korea
- Korea¡¯s trade balance swung back to deficits.
- Public company undergo sweeping reform.
- Hyundai Motor chairman got 3 year suspended prison sentence.
- LGE opened design center in London.
- Dongwon bought StarKist seafood business.
- HHI formed a shipping fund.
- Labor union tangled the procedure on sale of yard.
- STX offered to buy more share of Aker.

GOVERNMENT AND SOCIETY

Protests against US beef imports are intensifying through the month. A coalition of about 1,700 civic groups led the rallies in Seoul. Tens of thousands of people marched with candles in the city center, demanding the government renegotiate its beef deal. One mil people across the nation attended vigils to protest against US beef imports during a night, on the 21st anniversary of the grass-roots uprising which helped establish democracy here, and on the sixth anniversary of the deaths of 2 schoolgirls who were accidentally killed by a US combat tanks. The protest turned violent as police tried to block citizens from marching toward Cheong Wa Dae, president¡¯s office. Some demonstrators smashed a police bus with steel pipes and hammers. Opposition parties also ratcheted up their pressure on the government, calling for either nullification or renegotiation of the import deal.
Nearly 10,000 riot police were deployed in central Seoul. They used water cannons, clubs and shields to disperse increasingly uncontrollable demonstrators.
US Ambassador raised the hackles of opposition lawmakers and citizens with his comments, saying "We hope Koreans will begin to learn more about the science and about the facts of American beef." He also expressed dissatisfaction with the government's decision to postpone beef imports. Seoul officials have asked US diplomats to refrain from remarks that might provoke anti-American sentiment.
Korean Trade Minister Kim Jong-hoon visited USA to hold additional talks on US beef imports. Kim had to find a balance between the Korean public's wishes for a renegotiation of import conditions and the US Democratic-led Congress that demands full reopening. The new import pact agreed on April 18, allows all parts of the US beef, regardless of age, to enter the Korean market.
Korea and USA have at last reached a "satisfactory agreement" on an additional import condition on US beef. Washington is to guarantee exports of beef with age labeling. They also agreed to ban US beef imports if any specified risk materials are found in the meat during the quarantine inspection process. A group of local beef importers issued a statement that they would voluntarily block beef of older cattle from entering the Korean market. The USA also agreed not to export 4 cattle parts, brains, eyes, skulls and spinal cords, irrespective of the age of the cattle. Korean will be entitled to inspect US slaughters, suspected of violating the agreed safety measures.
The government announced a series of measures to enhance the safety of US beef and soothe public anxiety over mad cow disease, tightening quarantine inspections on US beef and expand the country-of-origin labeling rules on meat. If a restaurant is found to have violated the law by mislabeling the country of origin, it could be fined KW30 mil and the owner could be sentenced to up to 3 years in prison.
Protesters have been criticized for widening their political targets, and even threatening to oust President Lee. The topics included educational policies, the project to build a cross-country canal, and the plans to privatize the health service and public enterprises, deviating from its initial "pure" purpose of protecting public health.
President Lee Myung-bak ordered a tough response to violent and illegal protests against US beef imports. He expressed concern that radical activists have taken the helm of the candlelight vigils, turning them into a movement that challenges state authority and negates "national identity." Law enforcement agencies warned that they will crack down on assaults, blackmailing, malicious rumors and other illegal activities. Police and prosecutors are jointly conducting an extensive investigation into the spread of false rumors and calumny regarding US beef, largely on the internet.
 
The quarantine inspection starts for some 5,300 tons of US beef, stored in container yards in Busan and Yongin since last year, resumed, as the Seoul government posts the new import conditions for the American meat in its gazette on June 25, after postponement twice. Also the Trade Ministry released the full text of the agreement Seoul and Washington made in their additional negotiations. Importers are expected to release US beef products to wholesalers or small stores. Citing the scare over US beef, large retailers and supermarkets said they are not going to sell American meat for a while and will wait for the right time to begin sales. In an effort to attract customers, meat importers said they will sell American beef at a discounted price starting in July.
 
MBC, one of Korea¡¯s major broadcasters, came under fire, as its own program fueled ¡°false public concerns¡± with its series of critical reports on US beef and the government. On April 29, MBC¡¯s popular investigative news program ¡°PD¡¯s Notepad,¡± suggested that Koreans were more vulnerable to Creutzfeldt Jakob disease than Americans. The program also reported that downer cattle were slaughtered and sold in USA, triggering further concerns as if downer is a kind of mad cow disease. A member of program¡¯s translation team, asserted that the producer deliberately exaggerated the facts.
 
The 4 month old Lee administration has been staggering over nose diving approval ratings and intensifying anti-government protests after agreeing with Washington on April 18. President Lee urged the nation to put aside the dispute over US beef imports and unite to fend off a simmering economic crisis. The president said that the resumption of beef imports is inevitable because a further delay could undermine the nation's credibility as a responsible trade partner. The beef fracas forced the president to apologize to the nation twice in a month's time. President Lee stressed the need to protect law and order and the livelihood of ordinary people from the extremists' demonstrations and pledged to deal sternly with radicals who have tried to use the public anger over beef importation to challenge the nation's core values of democracy, free-market economics and alliance with USA.
 
The ruling Grand National Party scrambled to contain the fallout from June 4 by-election setback. The GNP suffered a crushing defeat, wining only 9 of the 52 local administration and council seats up for grabs, while the main opposition United Democratic Party took 23. The President Lee's 100-day performance bogged down by many controversial policies. The entire Cabinet member and senior presidential staff issued the resignation early this month. They have served only 107 days.
The administration decided to delay Lee's flagship pledges to build a cross-country canal system and to privatize bloated public companies. The government and ruling GNP presented a range of policies geared to help low-income households, elderly people and freight truckers. Lee's popularity once fell to 17% in one poll, the lowest-ever for a president in the first 100 days in office.
 
As many as 13,496 truck drivers had joined the strike, much bigger than the 2003 walkout, when 5,000 truckers took part, because of the mounting fuel price burden. They complained "In the last decade, the price of diesel has surged up to 4 times and it escalated 40% in this year alone, but freight movement fares for truckers have either remained at the same level or even dropped in some serious cases." In 2003, truckers went on a massive walkout which led to export losses worth $540 mil and left export container shipments frozen at major ports throughout the nation. Those on strike mainly are self-employed truckers who have to bear the brunt of the fuel cost burden. They are demanding a guaranteed minimum haulage rate to offset the skyrocketing fuel prices. The trucker's union also demanded the government introduce more clear standards in trucking rates to enhance transparency and cut unnecessary expenditures to middlemen. Drivers claim that around one third of total freight transport fares are spent on brokers and trucking firms.
The national logistic system has been collapsed and the production and trade activities are being frozen.
A week-long strike has disrupted $2.89 bil worth of exports and $3.03 bil worth of imports between June 12-17, about 1% of the value of Korea's total trade in May, before the union reached an agreement with shipping firms on June 19 to end their week-long strike. They agreed to raise long-distance haulage rates by 19% and introduce legal standard shipping rates next year. Government pledged to revamp the multilayered brokerage system and also pressured shippers to make more concessions to settle the dispute early. The government has promised to introduce standardized freight rates from next year.
 
Nuclear power has played a major role in boosting Korea's independence from fossil fuels over the last 30 years. Before the nation started nuclear power generation, Korea depended heavily on oil, accounting for 74% of the country's power supply. The figure declined sharply to 19% by 1986, when the nation's sixth nuclear power plant began operation. It further slipped to 4.9% in 2005 when country's 20th nuclear power plant began operation. Korea's nuclear power plants now generate 40% of the nation's power supply. Korea is building 8 more units by 2016. By 2015, the nation's total nuclear power generation capacity will surge to 25,916 megawatts from the current 17,716 megawatts, accounting for 48% of the country's total electricity output. When the fuel cost of nuclear power rises by KW1.4 per kWh, that of bituminous coal surges KW21 and that of LNG jumps by KW59. Another attraction of nuclear energy is that it produces a low level of carbon dioxide emissions.
 
The population aged 15 to 24 in Seoul has dropped by nearly a third over the past 10 years, from about 1.89 mil in 1997 to 1.38 mil last year, mainly due to low birth rates. The age group accounted for 13.5% of the capital city's total population, down from 18.2% a decade ago.
The minimum wage for Korean workers will be KW4,000 ($3.80) an hour next year, up 6.1% from 2008, as the minimum Wage Council, consisting of government officials, unionized workers and management, concurred on the increase after 3-day marathon talks. The policy will benefit about 13% of employees or 2 million people who live on the minimum wage.
 
Korean operatic ingenue Sumi Jo received the Puccini Award this year, and later on, Ambassador Massimo Leggeri handed Jo a more surprising gift, her first-ever contract, signed more than 20 years ago with the Teatro Verdi in Trieste, Italy. Luciano Pavarotti was awarded the prize in 2006. Among the winners are Renata Tebaldi, Maria Callas and Cecilia Gasdia.
Lee Seon-hwa won the Ginn Tribute trophy from LPGA tournament hosted by Annika Sorenstam on June 1. Lee got her third LPGA title, taking advantage of a stunning collapse from Sophie Gustafson, and watching Hall of Famer Karrie Webb miss a short par putt in the playoff. Lee shot a 67 to finish at 14-under 274.
Inbee Park, then 9 years old, woke up in the middle of the night 10 years ago when she heard cheering from the living room of her apartment outside Seoul.. Her parents were up at 3 am to watch Se Ri Pak become the first Korean and the youngest winner of the US LPGA Open. 2 days later, she started to hold a golf club for the first time. On June 29 this year, Park won the biggest trophy in women's golf, capturing the US Women's Open with nearly-flawless golf over the final 10 holes while everyone else melted away. 2 weeks shy of her 20th birthday, Park replaced Pak as the youngest Women's Open champion. She recorded a 2-under 71 and a 4-shot victory over Helen Alfredsson. She finished at 9-under 283 and earned $585,000.

NORTH KOREA AND NATIONAL DEFENSE

NK submitted its declaration of nuclear programs on June 26 to China, host of the 6-party talks. The declaration was agreed to be completed by the end of last year, based on the Oct 3 agreement. China has been passing around the declaration to other members, SKorea, Japan and Russia. The declaration, some 45-50 pages long, reportedly covers the production amount and use of plutonium, as well as operation logs of nuclear facilities. It was reported that NK declared 36-37 kilograms of produced plutonium, which could be enough to build from 6-10 bombs, falling short of Washington's estimation at 35-60 kg. The matter of clandestine uranium enrichment program and nuclear proliferation were separately included in a confidential document exclusively given to USA.
USA was set to commence the process of delisting Pyongyang from the states sponsoring terrorism, and terminating its application to the Trading with the Enemy Act. The removal from the terrorism list will be valid after 45 days of notification to the Congress.
 
NK has invited foreign TV stations to broadcast the toppling of the cooling tower to demonstrate its plan to give up its nuclear ambitions. NK blew up the 25-meter-tall concrete cooling tower of its atomic reactor, on June 27, a symbol of the country's nuclear program. The event came one day after Pyongyang handed over a report detailing its past and present nuclear activities.
The next step in the disarmament talks will be to verify that claim, through procedures that would be set up within 45 days. The verification at first will review the documents and inspecting the reactor to infer how much plutonium was produced, to be compared with the amount that the North claims in the declaration.
SKorea praised the North on its efforts to follow international agreements to dismantle its nuclear programs, calling the demolition a ¡°first step'' toward the denuclearization of the Korean Peninsula.
 
The US Secretary of Defense confirmed to maintaining the current level of combat capability for its 28,500-strong armed forces in Korea. He stressed that there would be no decisions or changes in the US troops' combat capabilities "without full consultations with Korean ally." In April, President Lee and US President Bush agreed to halt the troop reduction at the current level, defying an earlier agreement to cut the number of US military personnel in Korea to 25,000 by 2009 from the initial 37,000, as part of Washington's moves to reposition its troops across the globe.
The Navy launched its third 214-class submarine built by HHI. The 1,800-ton vessel, named after Ahn Jung-geun, Korea's independence fighter against Japanese colonial rule, is equipped with advanced systems including air-independent propulsion, which allows the submarine 2 weeks of deep-sea operations without surfacing and is capable of reaching depths of 250 meters, equipped with torpedoes, mines and guided missiles.
 
Following NK's "successful" bilateral discussion with Japan, concerns are growing here that the Seoul government may be left out in the field of the accelerating nuclear negotiation. Japan has been the last partner that the North had refused to talk with among the members of the 6-party talks. Bilateral communication between Washington and Pyongyang has already been activated since NK's nuclear test in Oct 2006. China and Russia have maintained their close relationships with the North. However, Pyongyang continues to put on a stern face toward Seoul, citing the "hostile" NKorean policies of the new Lee administration. During the times of confrontation between NK and Japan, and NK and USA, the South often volunteered the role of a mediator. But NK is most likely to stay closer in contact with both USA and Japan, while attempting to leave Seoul in the dark. Since the inauguration of the Lee administration this Feb, Pyongyang has suspended all government-level dialogues.
 
NK's economy shrank 2.3% in 2007 on year, continuing its second straight year of contraction, following its 1.1% fall in 2006. NK has suffered from a chronic shortage of food and energy due to years of isolation, mismanagement and natural disasters. The gap between 2 Koreas' economies is further widening. North's nominal GNI reached KW24.8 tril ($24.2 bil) last year, just 2.8% of South's 2007 GNI of KW902.5 tril.
Hyundai Asan, the exclusive SKorean operator of tours to NK, is enjoying a boom this year, despite the lack of progress in inter-Korean relations. The number of SKorean and expatriate tourists who traveled to Mt Geumgang from Jan to May surged to 145,809, up 60% on year, under the escalating tension between Seoul and Pyongyang over the past several months.
POSCO is holding talks with NK to purchase more coal and iron ore from the North, over the ways to double coal purchases to 400,000 metric tons this year and the methods of securing other raw materials such as iron ore in order to meet rising demand and costs.
NK has refused the proposal of the SKorean Red Cross last month to send 50,000 tons of corn there. The Seoul government has decided to send the aid, without any government-level contact, should NK decide to accept it. Famine-stricken NK is currently in discussions with USA regarding food aid equivalent to 500,000 tons of grain.

ECONOMY AND POLICY

Many experts warned of stagflation in the second half of the year, with a slow growth accompanied by high inflation.
BOK projected that Korea's economic growth will slow to 4.6% in 2008 from 5% last year as surging oil prices further dent the already sluggish domestic demand. The central bank also expect the consumer price index will hit a 10-year high of 4.8% this year, much higher than the Dec prediction of 3.3%. BOK revised Korea's average import oil price forecast to $115 per barrel from $81 in Dec. It also estimated that the GDP will expand only 3.8% in the second half, crashing down from a 5.4% growth in the first half. Exports will slow to grow 9.8% this year, down from a previous forecast of 10.3%. The annual current account will be a shortfall of $9 bil in 2008, much grimmer than the initial forecast of $3 bil. Korea, the world¡¯s fourth largest oil buyer, imported $35.2 bil worth of oil in the first 5 months of the year, up 59% on year.
Korea's economic growth is likely to be one the slowest among countries in Asia next year, major investment banks forecast. Their average growth outlook stands at 4.5% for 2008 and 4.8% for 2009. The 4.5% growth projection for Korea this year is second lowest after that of Taiwan, which is on 4.2%. The 4.8% outlook for 2009 is the lowest among Asia's emerging economies.
Finance Minister and BOK Governor called for price stability top priority. Consumer prices hit a 7-year high of 4.9% in May. Oil prices have doubled over the past year, hurting consumption and investment. Recently, Seoul announced a KW10.5 tril ($10 bil) tax rebate and subsidy scheme to ease the energy burden for low-income earners, the self-employed, truckers and farmers. The government is to announce a new economic forecast and policy in early July.
 
Korea¡¯s trade balance swung back to a deficit of $284 mil in June as exports grew at a much slower pace than imports due largely to high-flying oil prices. Exports rose 17% on-year to $37.43 bil, with imports soaring 32.3% to $37.71 bil. For the first half, the exports grew 20.5% annually to $214.08 bil with imports shooting up 29.1% to $219.79 bil for a trade deficit of $5.71 bil. The deficit in the first half is the first in 11 years.
Current account deficit narrowed sharply to $377.5 mil in May, down from a $1.58 bil deficit in April, as dividend payments by local firms to foreign investors fell, despite a slowdown in export growth. The trade balance posted a surplus of $612.5 mil in May, down from a $1.63 bil in April. The shortfall of the service account widened to $1.17 bil in May, compared with a revised $979 mil deficit in April.
 
Korea's overseas debt climbed to $412.5 bil at the end of the first quarter from $382.2 bil 3 months earlier. Debt maturing within a year made up 52.3% of total overseas loans. The economy came close to collapsing during the Asian financial crisis a decade ago partly because of a surge in short-term overseas debt that exceeded the country's foreign reserves. Short-term debt rose by $16.2 bil to $176.5 bil in the quarter, while long-term debt increased by $14.1 bil to $236 bil.
Korea Stock Exchange has signed a preliminary deal with the Chicago Board Options Exchange, in a bid to promote their market. The KRX also signed a MOU with London Stock Exchange Group Plc, to enhance bilateral cooperation. 14 Korean companies such as Samsung Electronics and LG Electronics have been listed on both of LSE and KRX. With the signing of 2 MOUs, the number of overseas exchanges that have signed the cooperation deal with KRX increased to 28 from 16 countries.
 
Last month, Shinhan Bank signed an agreement to acquire the Financial Standard Commercial Bank in Kyrgyzstan and has been working to set up a subsidiary in Uzbekistan. In Kazakhstan, Shinhan has become the first foreign bank to get the local regulator's approval to operate a banking business. Shinhan also became the first Korean bank to set up a subsidiary in Cambodia, establishing its wholly owned subsidiary, Shinhan Khmer Bank, in Oct last year. Shinhan plans to increase its number of offshore branches to 100 by 2012 and generate more than 10% of its overall profit from its global networks. Overseas operations accounted for some 4% of the lender's net income of KW2 tril ($2 bil) last year.
 
A Seoul appellate court acquitted the president of Lone Star Funds' Seoul office of stock-price rigging charges. He was given a suspended sentence of 2 and half years in jail for other charges. Prosecutors would take the case to the Supreme Court. He was alleged to have artificially reduced the stock price of KEB's credit card unit in collaboration with Lone Star management by spreading false rumors of a capital reduction in Nov 2003 so as to cheaply acquire the credit card unit. The Seoul High Court ruled that the capital reduction plan was not false, as the US fund considered the plan at its board meeting. Lone Star took over KEB in Oct 2003, currently holding a 51.02% stake in the bank, and acquired its credit card arm in March 2004. Lone Star cut a deal with HSBC Holdings to sell its KEB stake for $6.3 bil in last Sept. 2 sides agreed to extend their April 30 deadline to the end of July. Currently, there are 2 relevant cases referred to local courts. One is regarding the stock manipulation case, involving the president of Lone Star Seoul, and the other is about the charges that the government approved the US fund's purchase of KEB at a below-market price.. The latter is still pending in a lower court.
 
The government has secured the right to explore 8 oil fields in northern Iraq. The pact signed between KNOC and the Kurdish government will allow Seoul to gain access to 1.9 bil barrels of crude oil, the equivalent of Korea's crude oil demand for 2 years. The KNOC also signed a separate deal to build infrastructure such as roads, water pipes and electricity lines with the Kurdish government.
Daewoo International has clinched a preliminary deal with a Chinese state run company to produce, transport and sell natural gas at its the A-1 and A-3 gas blocks in Myanmar. The deal was signed between the China National Petroleum Corp and the Consortium, which consists of Daewoo Int, KOGAS, 2 Indian state run companies, ONGC and Gail Ltd, and the state run Myanmar Oil and Gas Enterprise. Daewoo holds 51% of the consortium.

CHAEBOLS

At 13 of the country's top 50 business groups, the founding families transferred corporate control to their heirs. Lee Kun-hee, who got the reins of the group from his father, Samsung founder Lee Byung-chul, is technically all set to give the throne to his only son and heir-apparent, Jae-yong. Shin Dong-bin, the youngest son of Lotte Group founder Shin Kyuk-ho, has a 14.59% stake in Lotte Shopping, to wield effective control over the country's fifth-largest conglomerate. Chung Mong-jin, the chairman of KCC Group, inherited the top job from his father, KCC founder Chung Sang-young. Dongbu, Taihan Electric Wire, Hyundai Department Store, Aekyung, Young Poong, Taeyoung, Nongshim, Iljin and Daishin and Dongwon have been followed. Hanwha Group chairman Kim Seung-youn's eldest son Dong-gwan now controls 5.34% of the shares in Hanwha Corp, up from 3.75% at the end of May, 2005.
The combined assets of the 30 conglomerates' subsidiaries increased 42.6% from the KW664 tril ($626 bil) recorded in March 2005 to KW918.5 tril in March this year. Over the same period, the subsidiaries' debt also rose by 38% from KW403.4 tril to KW556.7 tril, raising concerns that chaebols may experience additional difficulties if the global economy slows further.
The rush for alternative energy has taken as urgency across the globe as the international oil price approaches $140 per barrel. LG Group has proclaimed solar energy as one of its top growth priorities and will take on the manufacturing of solar panels. Samsung Electronics (SEC) has been running an ad-hoc team for solar cells, utilizing its accumulated know-how in LCD and silicon chip manufacturing. HHI already has a solar-cell manufacturing plant and plans to build a second solar-cell plant with an investment of KW300 bil ($288 mil). POSCO Power is currently building a KW120 bil eco-friendly fuel cell plant in Pohang, the world's first mass production facility for fuel-cell power generation. Eco-friendly hybrid cars are high on the product development priority of Hyundai-Kia Automotive Group, who plans to launch its first electric hybrid car next year. It hopes to begin mass-producing hydrogen fuel cell cars in 2012. Ssangyong Motor is focusing its resources into diesel-hybrid, with the aim of launching a diesel-hybrid power train in 2010. Korean Air plans to purchase Boeing 787 and Airbus 380, which boasts the highest level of fuel economy, hoping to save at least 20% on the oil bill compared to other existing models.
 
Public companies are expected to undergo sweeping reforms in accord with President Lee's new measures. CEO will have their terms reduced from 3 years to one, starting this month. Starting in June the government will introduce a standardized wage system for CEOs and auditors of state-funded companies and institutions, being designed to reduce the salary variation among different public institutions. The CEOs' present salaries range from KW100 mil ($97,000) to KW600 mil per year while auditors' wages vary between KW90 mil and KW400 mil. After the system takes effect, the average salary for the heads of public corporations will fall by 10.5% from KW220 mil to KW197 mil, including bonus payments.
 
Samsung Electronics (SEC) stayed on top of the global LCD industry, selling the largest amount of panels for 37th straight month. It logged sales of $1.9 bil in May, a quarter of the industry's total revenue. Also, the average price per unit of its LCD panel 40 inches or larger stood at $200, more than $30 higher than products of its competitors.
SEC swept the top global rankings among suppliers of LCD TVs, computer monitors and display panels. SEC took the largest share, 22.2% during the first quarter of 2008, widening the gap with Sony to more than 6% points. Samsung sold 4.13 mil LCD TVs during the first quarter, up 70% on year, holding the top spot for the seventh consecutive quarter. It is also the world's top seller of large-size LCD panels, shipping 22.8 mil units valued at $5 bil.
Samsung SDI and Germany-based Robert Bosch GmbH will form SB LiMotive, a joint venture in Korea, by Sept to produce batteries for hybrid electric cars, after investing $10 mil each. They will mostly produce lithium ion batteries, which are smaller, lighter but more expensive than nickel-metal hydride batteries. Currently, nickel-metal hydride batteries account for 99% of the HEV battery market. Samsung SDI accumulated the knowhow, by having produced battery packs for mobile phones, laptops and power tools.
SEC began selling its touch-screen Instinct handset for $70 cheaper than Apple's new iPhone to win sales in USA. It will offer the phone, which access e-mail and get live TV programs for $129.99.
Samsung Total Petrochemicals, the joint venture of Samsung Group and French Total Group, decided to build a KW11 bil ($10.5 mil) petrochemical plant in Dongguan in Southern China, aimed at producing 28,000 tons of polypropylene compounds annually to supply it to local automakers and electronics companies in China.
 
SEC and Hynix Semiconductor, the world's 2 largest makers of computer memory chips, have agreed to form a partnership to develop next-generation chips, in order to duplicate Korea's success in memory chips in other semiconductor fields. They expect to raise Korea's share of the global nonmemory chip market to 9.5% by 2015, from the current 2.4%. Korea accounted for 44.2% of global memory chip production in 2007. Korean chip makers have been in a less-than-cooperative relationship, while its peers in Japan, Taiwan and other countries formed broad-based alliances to take the leadership in the global chip industry.
 
Hynix developed the world's first 32 Gb 3-bit-per-cell NAND flash chip, reducing the size of the current mainstream 2-bit-per-cell chips, widely called multi-level cell chips or MLC, by 30%. Hynix plans to start mass producing the chip from Oct.
Hynix agreed to purchase 9.5% stake in ProMOS Semi Conductor, world¡¯s third largest semiconductor maker, for $167.6 mil, aiming to strengthen the strategic alliance with the company.
Hynix signed the MOU with Pyson in Taiwan for a comprehensive cooperation in Nand Flash Appliances, including Micro SD cards, embedded multimedia cards, Solid State Drive.
 
Korean contractors won the orders of $25.9 bil level in first half this year, being optimistic to achieve an annual goal of $45 bil.
Doosan concluded with GHECO-ONE of Thailand for the Engineering -Procurement-Construction deal to construct coal fired power plant worth $802 mil. The plant will have the capacity of 700 MW for the completion by Oct 2011.
Doosan won the orders to supply 13 units of RMQC container cranes worth $130 mil to Singaporean Port Authority.
GS Engineering & Construction won a $400 mil contract from Taneco, a unit of OAO Tatneft, to build an oil refinery in central Russia. The refinery will have a capacity of 150,000 barrels a day when it is completed by April 2011.
Rotem, an affiliate of HMC, has won a $230 mil contract to build a wastewater disposal plant in Oman. The plant for Oman Wastewater Service will be completed by June 2011.
 
A local appeals court handed Hyundai-Kia Chairman Chung Mong-koo a 3-year suspended prison sentence for breach of trust and embezzlement, and also ordered him to do community service 300 hours of working in environment protection activities and at welfare facilities. Chung was indicted in May 2006 on charges of misappropriating company funds, estimated at KW90 bil ($88 mil). He was suspected of using the money for political donations and his personal expenses. In Sept last year, an appellate court sentenced Chung to 3 years behind bars with a 5-year suspended sentence, whereas the lower court had earlier sentenced him to 3 years in Feb 2007. The Supreme Court scrapped the appellate court's ruling on April 11, saying that the community service handed to Chung was "improper" as it was not in the form of physical labor.
CDL Hotels Korea, owner of Millennium Seoul Hilton, sued Kim Woo-jung, the 71-year-old disgraced tycoon in Jan last year. CDL claimed that the 25-year contract for all 903 sqm of the most valuable 23rd floor caused business losses. The defunct Daewoo Development inked the contract with Kim in early 1999, which he agreed to pay KW120,000 ($115) per year for 25 years. In the aftermath of the 1997-98 Asian financial crisis, the company sold the hotel to CDL Hotels Korea. The contract with Kim was also included in the deal. After the deal was signed, the floor remained empty for about 7 years while Kim went into hiding overseas. Kim was convicted in Nov 2006 of embezzlement, accounting fraud to the tune of KW20 tril. An appellate court sentenced him to 8-and-a-half years in prison and ordered him to forfeit KW17.93 tril.
 
LGE opened a design center in London, aiming to strengthen its product design and marketing capacities. The opening ceremony was attended by Prince Andrew, the Duke of York, members of the local government and renowned product design experts. They will design products for LG's entire range of consumer goods including mobile handsets and devices, flat-screen TVs and audio systems, white-goods and other home electronics.
LG Chem, Korea¡¯s largest chemical maker, has signed a contract to buy a facility to produce super-absorbent polymers from Kolon Industries for some KW90 bil ($86.8 mil), aiming to expand sales of the material to KW1.5 tril by 2015 from the current KW100 bil. The facility has an annual production capacity of 70,000 tons of super absorbent polymers.
 
Korean food group Dongwon agreed to buy StarKist seafood business from Del Monte Foods for $363 mil, creating the world¡¯s top canned tuna company. Dongwon Group includes the world¡¯s biggest tuna fishing company Dongwon Industries and processed food maker Dongwon F&B. StarKist had a 37% share in the $1.8 bil US global processed tuna market in 2007.
SKT has agreed to sell off its ailing US unit to Virgin Mobile USA Inc for about $39 mil. It launched Helio, its US communications service, in 2006 as a joint venture with US internet service provider Earthlink, posting the loss from its start. Virgin Mobile, a joint venture between the Virgin Group and Sprint Nextel Corp, will gain about 170,000 customers from the purchase. Separately, Virgin Group and SKT agreed to invest $25 mil each in Virgin Mobile. SKT will own about 17% of Virgin Mobile USA and take 2 seats on the board.
Google Inc sees an opportunity to experiment with mobile applications in Korea, launching an open mobile platform, called "Android."
Lotte Confectionery Co. decided to acquire Belgian chocolate maker Chocolatrire Guylian NV for 105 mil euros($163 mil).
 
Around 8 local and foreign budget airlines are gearing up to get into the expanding international travel demand in the Korean market. Jin Air Co, the low-cost carrier of Korean Air Lines, plans to launch its first flight in July. Archrival Asiana Airlines also recently invested in Busan International Air in order to advance into the budget airline industry. Tiger Airways, Singapore's budget carrier, established a low-cost airline venture with the Incheon City government earlier this year. Yeongnam Air, a Busan-based budget carrier, has attracted KW40 bil ($38 mil) from a Tokyo-based aircraft leasing firm, Suite Asia Japan, an affiliate of ITC-Aerospace Inc.
 
Kumho Petrochemical completed the construction of a petrochemical plant in Nanjing, China, to produce 80,000 tons of propylene oxide, 50,000 tons of polypropylene glycol and 100,000 tons of caustic soda annually. A total of $113 mil was jointly invested with Jiangsu GPRO Group. The Nanjing factory is the company's fifth manufacturing facility in China. The company also bought a 50% stake in the epoxy manufacturing plant of Jiangsu Yangnong Chemical Group.

MONETARY AND ECONOMIC ENDICES

Korea Composite Stock Price Index has plummeted to the bottom throughout the month. It started at 1847, continuously dived to end the month at 1674, breaking the psychologically important level of 1,700. New record high of oil prices sent Wall Street plunging to their lowest level in nearly 2 years.
The exchange rate of KWon against USDollar has been weakened from 1023 to 1046. It has fluctuated in the balance of the soaring oil prices and government intervention. Finance Ministry made it very clear that they are prioritizing price stability through the intervention. The won also pared gains as overseas investors sold more local shares than they bought. The local currency has fallen more than 9% against the greenback so far this year.
Korea's commodity prices rose at the fastest clip in more than 10 years in May on soaring oil costs and a weaker KWon. The price index for raw materials and intermediate goods jumped 34.6% in May on year, the steepest on-year rise since March 1998. Producer prices rose at the fastest clip in more than 9 years to 11.6% in May. The nation's foreign reserves fell to $258.1 bil as of the end of June from $258.2 bil in May.
The consumer-price index jumped 5.4% in June on year, after setting a 7-year high of 4.9% in May and breaching the central bank's target range of 2.5-3.5% for a seventh month.
BOK froze its key interest rate in June for the 10th straight month at 5% on inflation woes. Korean banks average lending rates for households and companies rose by 0.05% to 6.96% in May. The yield on 3-year government bonds rose 0.3% to 5.28%. The yield on 3 year corporate bond has been soaring from 5.84% to 6.88%. The unemployment rate declined to 3% in May from 3.2% in April.

SHIPBUILDING AND SHIPPING

Korea¡¯s Big 3 received a combined $31 bil in orders this year. Their backlogs reached about $122 bil as of the end of May. Korea exports of ships jumped to $10.3 bil worth of ships during the first 4 months of this year, up 22.8% on year, on increased global demand.
The master, first officer and owner of 270K VLCC Hebei Spirit have been cleared of all charges relating to a huge oil spill off west Korean coast last year. 2 Korean tug captains were jailed for 3 years and fined KW5 mil while another was hit with a one-year jail term, while SHI, operator of the crane which struck the Hebei Spirit, was slapped with the heavy fine. The 1993-built Hebei Spirit spilled 10,500 tonnes of oil when it was hit by a crane which fell from the deck of crane-barge operated by SHI on 7 Dec. IOPC Fund raised the estimated the damage caused by oil leakage from Hebei Spirit to KW573.5 bil from KW424 bil in last March.
POSCO plans to raise prices of steel products to cover rising costs of raw materials, its third hike this year. The price of steel plate for shipbuilding will rise KW135,000 to KW920,000, citing the price of iron ore has risen at least 65% this year, with that for coking coal rising 3 fold. Dongkook Steel raised the prices of steel plates by KW250,000 to KW1.26 mil per ton from June 30. It is the third time to increase the price this year.
 
HHI has won a $837 mil deal to build 9 oil tankers from a European shipping company, 9+9 x 4,500-teu boxships for Maersk Line, and Hyundai Samho got the order from Sovcomflot 2 x 114K tankers. HMD received orders from Asian owner for 4 x bulkers, Westfal-Larsen 2 x 46K IMO-II chemical tankers and Mid Eastern owner 7 x 35K bulker
HHI¡¯s "thrust fins" on the rudder has received favorable response from customers, and number of owners has requested to install the fins on their vessels. Hyundai has delivered its first vessel with the fins, a 8,600-TEU container vessel, to Hapag-Lloyd in April. HHI claimed that the fins reduce fuel consumption by 4-6%.
HHI is to form a shipping fund through newly acquired CJ Investment $ Securities, aiming to enhance its competitiveness.
HHI received an order from Iraqi Government to supply 144 units of diesel generators total capacity of 360 MW. It has won the order for 973 units of package type of generators from 23 countries over the world.
 
SHI won the order from UASC for 9 x 13,000 teu boxships, Geden Lines 3 x 318K VLCCs and an American 1 x drillship.
SHI¡¯s 2008 orders have broken through the $7 bil barrier after the yard secured its latest drillship newbuilding for a US owner. It has racked up $7.1 bil worth of orders in this year.
SHI acquired 10% stake in Brazilian yard, Estaleiro Atlantico Sul at $22 mil, setting a footing in huge scale of Brazilian offshore market.
 
DSME agreed with Claus-Peter Offen to build 2+2 x 180K bulkers at Daewoo Mangalia, European owner 2 x 320K VLCCs, DK Maritime 2 x VLCCs, European 3 x 320K VLCCs, and another European owner 2 x capers and 2 x VLCCs.
DSME won $2.3 bil of orders in June, its biggest monthly order this year. Contracts were for 12 vessels, including 9 VLCC, a deepwater drill ship and 2 bulk carriers. Daewoo, which aims to win $17.5 bil of orders this year, has received $7.56 bil in the first half.
DSME claimed to be the first yard in the world to deliver 100 VLCCs, when it has delivered the 318K Sirius Star and Vega Star to Vela, its numbers 100 and 101, after 20 years in the business.
Hoegh LNG has signed with DSME to carry out front-end engineering and design (FEED) for the hull of its FPSO unit and inked a FEED contract for the topside. The contract will form the basis for the building contracts for the first delivery of early 2012.
The sale of a controlling stake in DSME has become even more tangled after its powerful labor union singled out one of the potential bidders Doosan Group, as they foresee labor-management relations might be confrontational, and claim controlling family of Doosan had been involved in corrupt management practices. Doosan, Hanwha, POSCO, GS Group and STX Group are the parties who have been reported interested in acquisition of DSME. The KDB plans to pick a preferred bidder by the end of Aug after a 4-week due diligence. But the due diligence has not started yet because the labor union stopped the team, demanding their participation in the course of selling.
DSME bought another 2.6% in DK Maritime, the Panama-registered JV shipping company, founded in April with Korea Line Corp. DSME paid about $44m for its initial holding, keeping its stake at 50%. DK has ordered 2 VLCC newbuildings at DSME with deliveries set for 9/2010 and 8/2011.
 
STX secured orders from Zodiac Maritime for 2 x 320K VLOC, Benelux Overseas of Greece 3 x 9K cbm ethylene carriers, Liquimar Tankers 2+1 x 320K VLCC, Perseveranza SpA di Navigazione 2 x 51K MR tankers and European 2 x pc.
STX shipbuilding offered to buy more of Aker yards in a clear sign to want full control of Europe¡¯s biggest shipyard. STX offered 63 crowns per share($12.17) for up to 7.92% of the shares in Aker Yards.
The deal, worth up to $110 mil, could raise STX¡¯s stake to 47.15% and trigger a buyout of minority owners. Under Norwegian law, buying a stake of more than 40% in a company triggers a mandatory bid for the rest.
 
Hanjin Suvic agreed with Yasa Shipping&Trading to build 4 x 180K bulkers. Hanjin-Phil has completed its first ship in its Subic yard, satisfying Dioryx for quality of 4300 teu container ship after sea trial. Daehan Shipbuilding held first naming ceremony of its HN-1001 for Golden Ocean of Norway.
 
SK Shipping, which has 8 vessels under construction at HHI, expanded for 3 more newbuildings, for the delivery in 2H/2011. It has already committed the COAs for 7. SK Shipping will own 14 VLCCs by the end of 2011. As the shipping arm of oil major SK Energy, who imports 1.1 mil tonnes of crude oil daily, SK Shipping is expected to expand continuously.
KSS Line set to contract 1 x 78K cbm VLGC at MHI at around $95m with delivery in 2012. Its last VLGC order was 4 years ago for 78K cbm Gas Friend (built 2005) at a reported price of less than $60m at MHI. KSS currently owns a fleet of 7 tankers, 3 VLGCs, 3 small gas carriers and one mid-size LPG ship.