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  Korea Report - September 2008
  Author : Hwang & Co     Date : 08-11-04 13:43     Hit : 41037    
Topics
-Government issued the guidelines on ¡°low carbon, green growth¡± strategy.
-Suzanne Scholte won Seoul Peace Prize.
-US beef made aggressive inroad.
-Government put forward a measure to secure food safety.
-President Lee made summit with Russian counterpart to forge a strategic partnership.
-NK started reassembling the nuclear facilities.
-Seoul works on the news of Kim Jong-il¡¯s illness.
-The rumor of Sept finance crisis in Korea is groundless.
-HSBC walked away from the deal to buy KEB.
-Government urged chaebol to increase investment and employment.
-POSCO completed world¡¯s largest hydrogen fuel cell plant.
-GS Caltex is in trouble with the leak of personal information.
-Hynix is put up for sale.
-Kwon plunged to 1200 against USDollar, while KOSPI managed stable.
-Korean yard secured 50.6% of world¡¯s new building orders for the first half.
-Emerging yards are in trouble.
-DSME and Hanjin start marketing for the Kamsarmax.
-Due diligency in DSME bid started.

GOVERNMENT AND SOCIETY

President Lee Myung-bak called on the Constitutional Court to lead the efforts to enhance the rule of law and forge national unity on the basis of democracy and market economics, besides protecting the basic rights of people.
Justice Minister vowed to strengthen the enforcement capabilities of the police by empowering them with legal immunity, if deemed necessary, as with incidents involving physical injury. Government views the nearly 3-month-long rallies against US beef imports as a clear manifestation of deteriorating public respect for the law. According to an estimate released by an institute, the protests caused losses of over KW1.9 tril, slightly more than 0.2% of the nation's GDP.

The government issued guidelines on reducing the carbon footprint of events to promote its "low carbon, green growth" strategy. The government chose 9 industries as the green energy sector, such as solar energy, wind energy, fuel cells, power plants using synthetic gas, energy storage technology, light emitting diodes technology and IT-based electricity control systems. Currently, 9 industries represent a meager 0.2% of the country's GDP, hiring just 9,000 workers, while the industries are expected to grow an average 15% annually in the next 10 years.
Seoul will more than double its budget for the development of technologies to combat climate change. A total of KW5 tril ($4.38 bil) will be invested in the next 5 years in R&D of technologies for such 9 industries. Another KW111 tril will be spent on new and renewable energy by 2030. With a goal of becoming the fourth largest manufacturer of environmentally friendly cars, the government will encourage to produce about 100,000 hybrid cars by 2013, compared by 1,062 in 2007.
The administration aims to increase the proportion of energy supplied by renewable sources, such as solar, wind and water, from the current 2% to more than 11% by 2030 and more than 20% by 2050. As a part of the strategy, the development of eco-friendly vehicles will also be promoted, with the goal of making Korea one of top 4 producers of low-emission cars. The nation's energy self-sufficiency would jump to more than 50% by 2050, from the current 5%.
The Korean Carbon Finance, the country's first company specializing in carbon rights trading and gas reduction-related investment, launched in Sept. The company will provide a one-stop consulting service for companies keen on carbon emissions trading or other green business opportunities under the Kyoto Protocol. The establishment of the firm is in line with the government's project to develop a hub for global carbon credit exchange in Korea.

US President George W Bush urged Congress to approve the pending free trade deals with Korea, Colombia and Panama, arguing that they will greatly enhance the US GDP, which is growing more dependent on exports. The remarks came as USA and Korean officials are expressing confidence that their FTA will be approved once it is put to a vote during a lame duck session held after the Nov 4 elections, which will help lawmakers avoid political risks in the election year. The FTA was signed in June, but the agreement still requires approval by the legislature of both sides.
Foreign Minister Yu and US Secretary of State Rice signed an agreement in New York to provide up to 5,000 Korean students with internship opportunities in USA. The 18-month program will allow Korean university students to come to USA to study English for 5 months at their own expense, then work as interns in companies or nonprofit organizations for 12 months and travel for the remaining month. The deal takes effect on Oct 31 and will be valid for 5 years.
SKorea and USA agreed to exchange information on suspected criminals, clearing the last hurdle to implementation of a visa waiver program that allows their citizens visa-free visits to each country for up to 90 days.

Suzanne Scholte, a human rights activist and president of the Defense Forum Foundation, has won the 9th Seoul Peace Prize, in recognition of her contribution to world peace while working to promote the freedom and human rights of the NKorean people and the status of the Sahrawi refugees in the western Sahara.
Scholte is a native of USA and a mother of three. When SKorea intentionally neglected the human rights issues of NK for diplomatic reasons, Scholte addressed the NKorean human rights issues in a decisive manner and focused on exposing the realities facing NKorean refugees as well as working out measures to improve their living conditions. In 2003, she also hosted the appearance of Hwang Jang-yop, NK's highest ranking defector, on Capitol Hill, playing a key role in highlighting the plight of NKoreans under the Kim Jong-il regime. In an effort to protest against the repatriation of NKorean refugees hiding in China to NK, Scholte conducted a campaign to wear rubber bracelets with a slogan of "Freedom to NKoreans" during the 2008 Summer Olympics Games in Beijing. Scholte will receive a diploma, a plaque and an honorarium of $200,000 at an award ceremony to be held on Oct 7 in Seoul.
The previous winners of the Seoul Peace Prize, which has been awarded biennially since 1990, include former International Olympic Committee President Juan Antonio Samaranch, former US Secretary of State George Schultz, Doctors without Borders, former UN Secretary-General Kofi Annan, and Muhammad Yunus of the Grameen Bank of Bangladesh.

Korea and the European Union signed an agreement to boost cooperation to rein in unfair business practices. The both sides would be able to conduct joint probes. Bilateral trade between EU and Korea amounted to $89.8 bil in 2007. The EU is also Korea's largest source of foreign direct investment, and total investments reached $44.8 bil at the end of 2007. Seoul's anti-trust watchdog plans to seal similar agreements with relevant authorities in USA, China and Japan.

The leaders of Korea and Romania agreed to boost economic cooperation between 2 countries in the fields of nuclear power, seaport construction and energy resources. Presidents Lee and Traian Basescu signed a joint declaration to upgrade bilateral ties to a strategic partnership at the conclusion of a summit in Seoul. The Romanian leader arrived in Seoul on Sept 10 for 2-day state visit.
The state-run Korea Hydro and Nuclear Power is planning to bid on the construction of 2 new Romanian atomic power reactors. Korea is the world's sixth largest generator of nuclear power and is running 20 commercial nuclear-power reactors. Korean firms are also seeking to take part in Romania's project to build a port terminal to process LNG imports from Qatar. 2-way trade was estimated at $930 mil last year. Korean companies such as shipbuilders, electronics firms and steelmakers invested $340 mil in Romania last year.

Korea has seen a surge in inflows of foreign capital into the private education sector in recent years, which has grown exponentially mainly due to Korean parents' zeal for their children's education. The Riverside Company, a US based private equity firm, is the latest firm to tap into the private tutoring market. The US company invested KW20 bil ($18.3 mil) to become the largest stakeholder of Wiz Korea, the operator of Wiz Island, a high-profile franchise dedicated to teaching children aged between 2-7. The Lee administration's emphasis on early English education has sparked demand for education for pre-school children and elementary school students. High-profile foreign investors, such as Carlyle, Goldman Sachs, Macquarie and AIG Group, invested in Korean private education firms, mostly online education firms and prep schools for magnet high schools. The nation's conglomerates also joined the fray. Samsung Group, SK Group and KT also have acquired or established online education firms for middle- and high school students.
Elementary schools in Gangnam, often referred to a district as the nation's education capital, will teach Chinese characters from Oct. Korean elementary schools stopped teaching Chinese characters in 1970 due to a "Hangeul-only" education policy. The most of young Koreans were illiterate in Chinese characters, which are the basis of 70% of the Korean vocabulary. Korea and Japan use traditional Chinese characters, but pronounce them differently.

In late July, a group of 29 Americans visited Korea on 2-week medical tour program, organized by the Korea Tourism Organization and the nation's major medical organizations. The program featured a full medical check-up and sightseeing around Korea's major tourist attractions. The medical service, which included both physical examinations and cosmetic treatments, received a very positive response from the participants. More than 95% of the participants were highly satisfied with the medical services and were willing to recommend the tour to their friends and family. Korea's medical tourism sector is aiming to attract 100,000 tourists by 2012, expecting the income of $37 bil. The number of patients visiting Korea's major hospitals jumped to 16,000 in 2007, up from 760 in 2005.

A total of 106 companies suffered from labor disputes in the first 8 months of the year, even though dropping more than 40% on year. The number of lost work days surged by more than 55% to 660,000 days in 2008, due mainly to the industrial strikes of metal workers. Unionized metal workers, affiliated with the hardline Korean Confederation of Trade Unions, were involved in more than 55% of all labor disputes.
The union membership rate for public servants rose to 67.1% in 2007, from a mere 27.7% in 2006. The public sector was the only one showing a rise in the rates. The ratio for private sector unions dropped 0.3% in 2007 from 9.5% in 2006. The ratio also fell to 31.2% from 33.5% for teachers. The ratio of unionized workers in Korea has been falling steadily since reaching 19.8% in 1989. It dipped to 18.4% in 1990, 15.6% in 1993, 12% in 2000, 11% in 2003, 10.6% in 2004 and 10.3% in 2005.

Fresh US beef products are making aggressive inroads into the local market. Frozen US beef has already grabbed over 10% of import meat market only a few weeks after Seoul lifted ban. Following the move, non-frozen US beef products, which fetch higher prices, are hitting the shelves faster than expected. A total of 68 tons of refrigerated US beef passed custom service in Aug. Frozen US beef ranked second on the list of imported meat in Aug with a total of 2,916 tons cleared by customs. Beef products from Australia topped the list with 6,593 tons. New Zealand and Mexico respectively sent in 2,723 tons and 277 tons of meat.

The government put forward a package of measures to secure food safety across the nation amid rising concerns over melamine-contaminated food products imported from China. Among the measures is a food-labeling system that orders all food imports to mark the country-of-origin and disclose whether a company sells a product from a second company under its own brand. It will also increase the examination rate for imported goods from the current 20% to 30% and strengthen the punishment for firms found to manufacture or import dangerous food. Manufacturers will also be obliged to state the number of calories, saturated fat and sodium on each of their products.

The ruling GNP plans to ease the tax burden on owners of expensive homes, revising the comprehensive real estate holding tax, which will boost not only the ailing construction industry, but the economy at large. Government announced its plan to increase the base of the tax from the current KW600 mil ($521,740) to KW900 mil, which is expected to reduce the number of households subject to the tax from 387,000 to 161,000. The revisions also include clauses exempting those who own more than one property worth less than KW300 mil outside Seoul from the capital gains tax. Under current regulations, the capital gains tax rate is set at 50% for those with 2 residential properties and a rate of 60% is applied to those with 3 properties.

Presidents Lee Myung-bak and Dmitry Medvedev held a summit at the Kremlin on Sept 29 and signed an agreement to forge a strategic partnership, promote various joint business projects, and cooperate to dismantle Pyongyang's nuclear programs. Lee arrived in Moscow on Sept 28 for 3-day visit.
With his official visit to Moscow, President Lee has completed the establishment of a "strategic partnership" with all of 4 main powers involved in Korean affairs, both historically and currently, in a little more than 7 months since his inauguration. Yet, the practical contents of these strategic partnerships cannot be the same in individual relations with USA, Japan, China and Russia. The one issued by Lee and Medvedev was most detailed and substantial. It spelled out how 2 countries would cooperate in the years ahead in the areas of economy, security, diplomacy, culture and denuclearization.
SKorea plans to buy nearly 20% of its future natural gas from Russia through a pipeline which would pass through NK. President Lee and Russian President Dmitry Medvedev agreed on the $100 bil project, under which Seoul will import 10 bil cum of gas a year for 30 years, beginning in 2015. Construction of the envisioned pipeline from Vladivostok to SKorea is scheduled to begin in 2011 and be complete by 2014, so that gas delivery can begin in 2015. That amount was nearly 96% of Korea's total household gas consumption last year, which was 7.8 mil tons.
SKorea expressed its support for Russia's entry to WTO, despite US opposition to Moscow's bid in the wake of Russia's armed aggression in Georgia in Aug. Moscow supported Seoul's participation in an array of energy development and infrastructure construction projects in east Russia.
On the sidelines of the summit, the nations signed 26 agreements to cooperate in the oil, gas, minerals, trade, science, information technology, aerospace, education and other fields. The two sides also agreed to restart a suspended joint oil drilling project off the far eastern Kamchatka peninsula. 2 leaders agreed to continue to cooperate in developing gas projects and building a LNG plant and a gas chemical complex in Russian Far East. 2 presidents also affirmed their willingness to promote linking an inter-Korean railway with Russia's trans-Siberian line. Late in Aug, Russia and NK agreed to launch reconstruction of the railway section between NK's port Rajin and Russia's station Khasan in the Primorye territory Oct 3. Russia will help rehabilitate the 54-km railway section and pushes to construct a container terminal and related infrastructure in Rajin. Lee proposed joint projects to develop ports in Russian Far East in connection with the continental rail projects. Lee met with Russian PM Vladimir Putin before his departure.

NORTH KOREA AND NATIONAL DEFENSE

NK, after halting the disablement work on its nuclear facilities in Aug, started reassembling the nuclear facilities at Yongbyon, partly to protest the USA¡¯s delay in taking the country off its list of terrorist-sponsoring nations.
NK has been disabling its key nuclear facilities in Yongbyon last year as part of the denuclearization process. In return it received energy aid, in addition to a promise to be lifted off Washington's list of states sponsoring terrorism. Washington was initially expected to lift the sanction by Aug 11, but as Washington and other members pressured Pyongyang to agree to a "complete and accurate" verification mechanism of its declared nuclear activities before lifting the sanction, the North threatened to resurrect the disabled facilities. NK has so far completed 8 of the 11 disablement steps. The remaining 3 include extracting spent fuel rods from the nuclear reactor, discarding fresh fuel rods, and removing the driving gear of the control rod.
Seoul and Washington expressed concerns over the reports of NK to restore its disabled nuclear facilities, and urged it to return to the negotiating process. While the North demands that its declaration submitted on June 26 is sufficient to be lifted from the Washington's list of states sponsoring terrorism, USA has been firm that a verification mechanism is a prerequisite.
The International Atomic Energy Agency reported that all the "key equipment" has been removed and is under supervision of its officials. The North had notified IAEA that it will reactivate its nuclear complex at Yongbyon. Pyongyang barred IAEA nuclear inspectors from the reprocessing plant, removing seals, monitors and cameras, which the North had disabled under a 6-nation denuclearization-for-aid deal. NK also stated that it would reload atomic materials into the reprocessing plant.

The Korean government decided to resume food aid to the North either through direct shipments or via the World Food Program. The UN World Food Program warned NK will slip back into famine unless given aid worth about $500 mil in the next 15 months and has formally asked SKorea to contribute $60 mil for its campaign in NK. SKorea is planning to deliver the remainder of its portion of energy incentives to NK as part of the denuclearization agreement, despite Pyongyang's latest refusal to comply with the process. It shipped around 1,500 tons of steel pipes and additional 1,500 tons next month, as a part of the energy assistance worth 1 mil tons of heavy fuel oil promised in return for NK's nuclear programs disablement and declaration, with the approval by other members of 6-party talks. The Seoul has so far sent 50,000 tons of HFO and energy equipments and materials equivalent to 66,000 tons of HFO.

The Seoul government began working on measures to prepare for a possible emergency that NKorean leader Kim Jong-il is in serious health problems. Following the absence of the 66-year-old dictator from the celebrations marking the 60th anniversary of NK¡¯s establishment, speculation escalated regarding the health of the opaque leader. The fate of the North largely depends on Kim, who has yet to officially designate a successor to his state. If Kim dies, NK could experience chaos as political and military factions vie for power.
Allied forces currently have a conceptual action plan, codenamed CONPLAN 5029, for such a situation, but the American forces have long since proposed promoting them into a fully operational set of plans, called OPLAN 5029, the operational plan outlining detailed action for responding to various types of internal instability in NK, such as regime collapse, mass defections and revolts. The idea was halted in 2005 on the decision of former President Roh Moo-hyun. Defense Minister stressed that the state is making "appropriate preparations" to cope with a possible provocation from the North.

USA warned that any long-range missile test by NK would violate a United Nation¡¯s ban. Reports have said NK has been building a mobile launch pad and a 10-story tower capable of launching intercontinental ballistic missiles that could possibly reach the US west coast. The UN Security Council adopted a resolution in 2006 demanding that the North "suspend all activities related to its ballistic missile program," and ¡°abandon its missile program in a ¡®complete, verifiable and irreversible manner¡¯."

President Lee expressed his willingness to hold talks with NK on the proposed Korea-Russia railway links, helping facilitate peace and stability on the peninsula and will lay the groundwork for a Northeast Asian economic community. The president added that the South is willing to help NK overcome its chronic food shortage and poverty, and he urged Pyongyang to abandon its nuclear weapons and open up to the outside world. Lee said that the proposed continental railway project will not only economically benefit 3 countries, but will also help ease tensions on the peninsula and advance peace in Northeast Asia.

ECONOMY AND POLICY

The government has drawn up a KW273.8 tril ($230 bil) budget for next year, an increase of 6.5% on year, focusing on funding for social infrastructure and R&D projects to create jobs and boost economic growth. Finance Ministry made it clear that the government will not reduce spending for social welfare funds to ensure that low-income households and ordinary people receive more education and land more jobs. More spending for low-carbon, renewable energy and green-growth businesses required an increased budget of KW13.2 tril in the industrial and energy sector next year, up by 5%. The government also plans to expand spending for national defense with a 7.5% increased budget of KW28.6 tril.
The National Assembly approved a KW4.57 tril ($3.97 bil) supplementary budget bill. The final version marks a KW2.96 bil cut from the government's original proposal of KW4.9 tril. The government and the ruling GNP had asserted that a large amount of subsidies should be granted to 2 companies, KEPCO and KOGAS, to offset losses incurred by the freezing of electricity and gas fees.

In the second quarter, Korea¡¯s economy, Asia¡¯s fourth-largest, expanded on 4.8% on year, the lowest since the first quarter of 2007. Finance Ministry projected that the annual GDP growth rate will fall to 4.7% this year from 5% last year.
Korea¡¯s trade deficit narrowed to $1.9 bil in Sept from $3.81 bil in Aug, due mainly to falls in crude oil and raw material prices. Exports rose 28.8% on year to $37.75 bil, while imports shot up 45.8% to $39.65 bil. In the first 9 months of this year, the country¡¯s trade deficit has ballooned to $14.24 bil from a surplus of $11.93 bil in the same period last year.
Exports of semiconductors, autos and computers declined compared with Aug 2007 due to weak prices and general sluggishness in the information technology market. Korea¡¯s oil price committee predicted the average price of Dubai crude will be settled at around $100 per barrel in 4 quarter, much lower than $115 in third quarter.
Korea's exports to Central and South America surged this year, exceeding the nation's shipments to Japan. Exports to the region amounted to $20.5 bil this year by Aug 20, a 37.3% increase on year, with the surplus of $11.5 bil. In contrast, Korea's shipments to Japan rose 16% to reach $18.6 bil during the same period. The trade surplus with China stood at $11.5 bil, while its trade surplus with EU and USA came in at $11.1 bil and $3.8 bil, respectively.
Exports of oil products jumped 20% on year to 31.5 mil barrels in Aug as refiners boosted overseas sales to offset declining demand at home.

The current account shortfall reached $4.71 bil in Aug, posting the largest shortfall in 12 years, up from a revised $2.53 bil deficit in July. In the first half, the country logged a cumulative deficit of $12.6 bil, compared with a surplus of $498.2 mil a year earlier. The country had posted shortfalls for the sixth straight month since Dec, marking the longest red-ink streak since the 1997 Asian financial crisis.

Volatility in interest rates and exchange rates and the dwindling foreign currency reserves prompted many to speculate that Korea may face similar foreign currency liquidity problems to those encountered during the 1997-98 Asian financial turmoil. Policymakers stressed that speculation about a possible liquidity crisis is "groundless" and the government was ready to take stern action on KWon¡¯s excessive drop. The IMF dismissed concerns that SKorea may face another financial crisis, citing the stronger fundamentals and a "far more resilient" SKorean economy than a decade ago. SKorean Prime Minister also dismissed as "groundless" rumors of a "Sept financial crisis" circulating in the country in recent months.

Korea was the United States' second-largest investment destination among emerging markets last year. US economy invested a total of $140 bil in Korean securities as of the end of 2007, continuing a climbing trend since 2004. The US investment in Korean securities totaled $74 bil at the end of 2004, $119 bil at the end of 2005 and $121 bil at the end of 2006. Korea accounted for 1.94% of America's offshore invested securities that totaled $7.2 tril as of the end of last year.

Korean banks are having difficulties coping with surging overseas funding costs due to the turbulence in global credit markets. The credit default swap premiums that local banks pay for 5-year overseas borrowing have surged over 2% recently. Kookmin Bank's 5-year CDS premium surged to 2% from 0.72% early this year. Woori went up to 2.29% as of late Aug from 1% late last year. The Korea Development Bank's 5-year CDS spread jumped to 1.75% as of late Aug from 0.62% late last year. Industrial Bank of Korea pays 2.14% CDS premiums, up from 1.64% in late June. The total overseas debt at local banks that have more than one-year maturity amounted to $10.7 bil in the first half, falling 7.8% on year.

KB Financial Group, the financial holding company to be established by Kookmin Bank, plans to merge its company with a major local financial holding firm to create one of Asia's top 10 financial services providers. For a financial firm to be within Asia's top 10, it has to have total assets of at least KW500 tril ($453 bil). KB Financial Group's total assets are estimated to be worth KW299 tril. KB's target could be Hana Financial Group, as the government's privatization plan for Woori Finance Group and Korea Development Bank will take more than a year. After HSBC gave up on the acquisition of KEB from Lone Star Funds, Kookmin Bank has emerged as a strong potential buyer of the KEB. To strengthen nonbanking areas such as brokerage, Kookmin is also considering buying Eugene Investment & Securities.
Shinhan Financial Group, Korea's second-largest financial company, will merge 2 asset management units next year to forge closer ties with BNP Paribas SA and create the country's third-largest fund manager. The merger will create a company that will manage KW30 tril ($26 bil) of assets, helping it compete for a bigger share of Korea's $316 bil asset management market. BNP Paribas, now owns 8.7% of Shinhan, and 50% of Shinhan BNP Paribas Investment Trust, the joint asset manager with Shinhan. Smaller rival Hana Financial has tied up with UBS AG.
HSBC Holdings has decided to pull out of its deal to buy a 51% stake in Korea Exchange Bank from Lone Star Funds, citing a delay in the regulatory approval of the proposed acquisition and changing global financial market conditions. In addition to Kookmin Bank, Hana Financial Group expressed their interest in the sale of KEB. Kookmin was chosen as preferred bidder for KEB in March 2006 but Lone Star terminated the deal after 9 months.

The demise of Lehman Brothers Holdings roiled the local financial markets, dragging the benchmark index down more than 6%. Government confirmed that the local financial firms' investments in Lehman's securities and derivatives amount to $720 mil, which is just a fraction of their total overseas investments of $61.5 bil. The government and the central bank assured to ensure stable liquidity through measures such as open market operations. The BOK is to supply US dollars in the currency swap market, if necessary. The Finance Ministry also conducted a verbal currency intervention to ease concerns. As of the end of July, Lehman's Seoul office had a total of KW1.6 tril ($1.44 bil) in assets.

The US government took control of the world's largest insurance firm, American International Group, which was struggling to stay afloat amid mounting losses, from its mortgage-related investment and the Federal Reserve injected it with an $85 bil rescue fund. The measure fell short of reassuring many of its customers, including 1.2 mil in Korea, who suspect their benefits are in danger. AIG's Korean unit confirmed that the company had enough money to pay claims to policy holders in Korea and that even if a "worst-case scenario" happened, their benefits would be covered by the Korean government's deposit guarantee program up to the limit of KW50 mil ($43,000). AIG Life has more than 3.2 mil policies in force as of the end of July and its assets amount to KW7.1 tril. AIG General has about 1.2 mil polices and assets of KW237 bil. AIG Life has seen double-digit growth every year since 2000, when it posted a growth rate of 119.7% based on premium income. Its share of the Korean market shot from 0.9% in 2000 to 3.7% by 2007. It is the second-largest foreign life insurer in Korea after ING.

Foreign bank branches in Korea saw their assets and profits sharply increase in the first half, as a rise in arbitrage opportunities prompted them to snap up local government bonds. A total of 10 foreign bank branches with more than KW10 tril in assets saw their combined assets reach KW157.8 tril ($138.8 bil) as of the end of June, up 62.6% on year. The combined net profit amounted to KW579.1 bil in the first half, sharply up 663% on year. The Seoul branch of HSBC posted the biggest total with KW26.6 tril, followed by that of ING Bank with KW21.6 tril. JP Morgan Chase logged a net profit of KW198 bil, compared with KW3.6 bil a year ago.

As of the end of Aug, gasoline prices in Seoul averaged $113.79 and diesel $133.26 a barrel. But coming into the first week of Sept, gasoline dropped to $109.06 and diesel $126.50 a barrel, respectively. In the second week, the prices further declined to $106.27 and $120.55.
Consumption of oil products in Korea, Asia's third-largest crude oil buyer, has been cut 4.2% on year to 60.6 mil barrels, for the 10th month cut in Aug as slower economic growth and high energy prices curbed demand. The average operating rate at refiners, including SK Energy, GS Caltex, S-Oil and Hyundai Oilbank, fell to 79.3% of capacity from 81.4% a year earlier.

CHAEBOLS

The government announced sweeping deregulation in the service industries, broadcasting and telecom, and urged corporations to increase investment and hiring. President Lee convened a meeting of top policymakers and business leaders to discuss measures to spur growth and enhance corporate competitiveness in the midst of a looming economic crisis stemming from a US financial debacle. The government will positively consider corporate demand to ease regulations regarding establishing and expanding factories in Seoul and satellite cites. Non-certificate holders will be allowed to run hospitals, pharmacies, law firms, accountancy firms and other specialty service concerns by employing professionals in those fields.
President Lee urged corporate leaders to make more aggressive investments, expressing his disappointment with the lackluster investments by large firms, despite his "business-friendly" initiatives such as corporate tax cuts, streamlining business regulations, and his tough stance regarding illegal labor activities. He emphasized to respond calmly and wisely to the financial crisis, that could positively affect the Korean economy, depending on how well policymakers and businesses respond. Business leaders told Lee that the 30 largest business groups plan to invest KW96.3 tril and hire 86,000 workers this year, which is up 27.5% and 30.5% on year, respectively.

Kumho Asiana Group wants to sell its life insurance business to raise cash, given recent investor worries about its liquidity levels. Kumho Asiana Group controls 69.85% of the shares in the unlisted Kumho Life, the country's 10th-largest life insurer. The decision to sell off the insurance company is part of the group's plans to secure KW4.57 tril ($4.5 bil). M&As became the most viable strategic options to diversify their revenue structure and move up the ladder in the local business community.
Eugene Group, whose flagship businesses are logistics and construction materials, is mulling the sale of its brokerage arm, Eugene Investment and Securities, which it acquired less than 2 years ago. Its brokerage business unit has been one of the hardest hit by the stock market slump, with a KW1.6 bil net loss in the first quarter of 2008.
The nation's second-tier conglomerates such as Doosan, Kolong and Dongbu Group have been reported struggling from a capital shortage. Some of the companies have turned to banks or capital markets to raise fresh capital to regain investor confidence.

Samsung Electronics and Hyundai Motor were included in the US-based brand consulting firm Interbrand's Best Global Brands 2008 list. 2 companies were the only Korean firms to make it onto the list. SEC, whose value increase 5% from last year to $17.7 bil, maintained its position at 21st place. Although HMC's position, 72nd, remained the same as the year earlier, the company's value rose by a larger margin of 9% over the same period to $4.8 bil.

Samsung Electronics (SEC), the world's No 1 maker of computer memory chips, maintained its lead in the field of multi-chip packages with a 34% share of the global market. SEC held, well ahead of second-ranked Intel at 17.6%, Toshiba at 16% and Spansion at 15.3%. The MCP is a combination of various chips such as NAND flash, NOR flash or mobile DRAM chips into one package optimized to meet the memory needs of mobile electronic devices.
SEC has completed construction of a TV-manufacturing factory in Russia, to meet the rising demand there. The factory is capable of producing 3 mil units of digital TVs, after spending $228 mil for the factory. Samsung is the No 1 seller of flat-screen TVs in Russia and is expected to grow 30% a year.
SEC has developed a 2Gb DDR3 chip using the 56-nanometer processing technology, which should improve memory performance in notebooks, desktops and servers. Samsung will begin mass producing the chips in Oct. DDR3, a successor to DDR2, is expected to take over as the main memory chip for most types of PCs in the first half of 2009. DDR3 is expected to account for 29% of the total DRAM market in units sold in 2009 and attain a 72% market share by 2011.
SEC has signed a contract with Lithuania's state-run broadcasting firm LRTC to establish the Mobile Wimax network there by 2010. SEC has supplied equipment and network systems for the next-generation wireless telecommunications technology, locally called Wibro, to USA, Japan, Russia and the Middle East.

POSCO completed construction on the world's largest hydrogen fuel cell production plant in Pohang with a combined output of 50 megawatts each year, which is the world's largest facility of its kind. Hydrogen fuel cells generate electricity by combining hydrogen and atmospheric oxygen, with only water being produced as a by-product. The fuel cell generators can achieve up to 47% energy efficiency, compared to conventional generators' 35%. The market is expected to grow to $80 bil by 2020. The company plans to build another plant of equal production capacity by 2011.

Hanarotelecom, the No 2 broadband firm, took the new name SK Broadband, 6 months after the firm was acquired by SK Telecom. SK Broadband and SK Telecom have introduced a bundled product comprised of broadband and mobile service. The new name is expected to reflect the company's goal of boosting converged services provided via broadband, such as internet protocol television, and voice over internet protocol, or VoIP. The government will allow IPTV to air live TV programs from Oct.

LG Electronics announced that global sales of its premium touch phone, the Prada Phone, have reached 1 mil units. Since its debut in March 2007 as the world's first full touch-screen handset, the Prada Phone has been selling well in major markets. LG plans to launch a new handset model in collaboration with the luxury fashion brand Prada starting in Europe in the fourth quarter of 2008.

Collective lawsuits are being prepared against GS Caltex, the nation's second-largest refinery, over the leak of personal information of more than 11 mil of its customers. 2 lawyers have begun receiving applications from victims of the nation's single largest data theft via their internet sites. The projected compensation per person ranges from KW1-2 mil ($918-1836). Police nabbed 4 people for their involvement in the case. One suspect works for GS Nextation, an affiliate of the oil firm, allegedly copied 6 DVD discs containing information on 11.25 mil customers. 500 customers of GS Caltex filed a collective lawsuit in a Seoul court, demanding a combined KW500 mil ($460,000) in damages for the leak of personal information of over 11 mil customers. About 3,000 people had, thus far, shown their intention to join the suit.
The data included the names, addresses, phone numbers, e-mail addresses and resident registration numbers of GS Caltex customers. As more victims are joining the move, the oil giant may face over tens of trillions of damage claims, the largest-ever in the nation's history.

Lotte Construction won a LPG storage tank project worth $40 mil from Jordan. The project includes 4 x 4K LPG storage tanks, connection piping and related facilities.
Lotte Shopping raised a loan worth KW110 bil as an operating fund, taking advantage of lower interest rate in JYen.

The Edrington Group which produces The Macallan, a Scotch whisky brand, will acquire Maxxium Korea in March. Maxxium is the Korean exporter of the Scotch whisky. The Edrington Group will open its office in Seoul early next year and start distributing both Edrington and Beam Global brands in the Korean market, which is one of major scotch markets in the world.

A Seoul court handed down a suspended sentence of 18 months in jail to Kim Woo-choong, former chairman of the now-defunct Daewoo Group, for having concealed some KW110 bil ($95 mil) subject to forfeiture. The 71-year-old disgraced tycoon of the nation's once second-largest conglomerate was ordered to forfeit the money following his conviction in 2006 of financial misconduct.
In a separate case, Kim was convicted in Nov 2006 of embezzlement, accounting fraud to the tune of KW20 tril and other charges related to the 1999 collapse of Daewoo. An appellate court sentenced him to 8.5 years in prison, fined KW10 mil and ordered him to forfeit KW17.93 tril. Kim was granted a special pardon in Jan this year. However, his monetary penalty remained unchanged.

Hanwha Group is set to buy a further 16% stake in Korea Life Insurance, Korea's second-largest life insurer, from state-run Korea Deposit Insurance Corp, boosting its holdings to 67%. Korea Deposit will hold the remaining 33%.

Microsoft plans to set up a R&D center in Korea jointly with the Korea Advanced Institute of Science and Technology. This would be Microsoft's fourth overseas R&D center, following those in UK, China and India. 2 sides will sign a MOU on Oct 30 on the establishment of an R&D Center at KAIST's campus in Daejeon. The proposed R&D center will focus its research on computer operating system, database management, application software and mobile technology.

Hynix Semiconductor is being put up for sale 7 years after its bailout. KEB and other major shareholders of the company agreed to sell their 36% stake. Considering the price of Hynix share of KW19,350 ($16), a 52-week bottom, the 36% stake up for sale is worth about KW2.47 tril. LG Group is rumored as possible bidders for the chipmaker. The group had handed over its semiconductor business to Hyundai Electronics, the predecessor of Hynix, as part of the government-led industrial restructuring program in 1999 and the conglomerate has LG Electronics and LG Display, competing broadly with SEC. Hanwha Group, GS Group, HHI and SK Group are also mentioned as possible buyers. Hanwha, GS and HHI, currently vying for DSME, may turn its eye to Hynix if it loses out on the Daewoo bid. Hynix posted an operating loss of KW688 bil in the first half and is forecasted to see another KW400 bil loss in the third quarter.

MONETARY AND ECONOMIC INDICES

KWon plunged to KW1,235 to the dollar to a five-and-a-half year low on the news of the bailout rejection, but gained later to end at 1,207 won. The won has declined more than 21% against the US dollar so far this year. The benchmark Korea Composite Stock Price Index fell only 8.3 points to close at 1,448.06, while other Asian stocks lost much more. The financial authorities moved fast to contain fallout from global financial market tumbles caused by the rejection of the $700 bil US banking rescue plan. The Financial Services Commission banned the short selling of stocks and raised the daily limit on share buybacks to 10% from the current 1%.

KOSPI started the month at 1414, tumbled to 1387, recovered to 1501 and ended the month at 1448. Financial Services Commission urged the nation's pension funds to increase their purchase in the local equity market to help prevent the stock from sliding further. The news of Korea's attaining developed market status in FTSE could not stop KWon from falling. However, the FTSE inclusion news seemed to have cushioned the stock falling in Korea, because a 2.3% fall was not large compared to the loss in Hong Kong of 7.1% and the Hang Seng China Index of 9.8%.

The exchange rate of KWon against USDollar finally broke 1200 at the end of the month to reach 1207. It started at 1116, dropped to 1086 to surge to 1207 at the end. The foreign currency authorities sold many billion worth of US dollars to prevent KWon from weakening further, but KWon has lost almost 20% versus the USDollar this year. Currency authorities have reaffirmed that they're ready to act against the market. Korea will inject at least $10 bil between this Sept-Oct by using the foreign-exchange stabilization fund into the local currency swap market to ease dollar shortages.
Korea's foreign reserves shrank to $243.2 bil in Aug from $262.2 bil in late 2007

The consumer price index jumped 5.1% in Sept on year, decelerating from a 5.6% on year advance in Aug, as oil and commodity prices showed signs of stabilization. Wholesale prices increased to the fastest pace in 10 years in Aug to 12.3% on year, following July's 12.5% gain, as a weaker currency drove up the cost of imported raw materials. Prices for industrial goods, ranging from textiles to plastics, climbed 17.1% in Aug on year. Costs of agricultural, forestry and fisheries products gained 5.8%. Electricity, water and gas prices increased 4.6% and services costs advanced 3.4%.
The central bank left its key interest rate for Sept unchanged at 5.25% to stem growing inflationary pressures. The benchmark yield on 5-year government bonds fell 0.26% to 5.75%. The yield on 3 years corporate bond has been rising from 7.46% to 7.92% to end the month at 7.76%.

SHIPBUILDING AND SHIPPING

Korean yards secured 50.6% of world¡¯s new building orders for the first half this year, aggregating 12.4 mil CGT. For all of 2007, Korea had a global market share of 39%, ahead of China¡¯s 37%.
Korean shipbuilders and Nippon Steel agreed on the price of thick steel plates at $1300-1400 level, from Oct 1. Dongkook Steel Mill raised its prices of shipbuilding plates by KW150,000 to KW1.41 mil ($1,282) per ton.
The emerging yards with no sufficient financing leverage have practiced deeper financial difficulties and upto 150 capes on order in the world would not be delivered. The prices for vintage bulkers kept dropping to the level scrap value, being no longer able to command premium prices. The heavier burden for the owners to build the ships is the more stringent conditions for financing. The demands for the dry tonnage have been disappeared. After Beijing Olympic and summer holidays, BDI has been in free fall, due to declining freight rates and the credit squeeze. BDI finally dropped below 4000 to 3217 at the end of the month.
C&Heavy Ind¡¯s No 2 yard has been put up for sale, throwing a number of capesize orders into doubt. C&HI acquired last Nov the yard, previously known as Shinwoo Shipbuilding&Offshore, planning to expand it into a facility for constructing capesize bulkers. The company has so far secured 5+3 orders for capsize bulkers. C&Group has been pressured to sell off a number of its subsidiaries to raise the cash. C&HI's No 1 yard has an order backlog of 40 kamsarmax bulkers. C&Merchant has lost KW200 bil ($167 mil) worth of coal shipment contracts with Korea Western Power, a subsidiary of KEPCO, after the dispute over the freight rate.

HHI had orders from Hyproc, the shipping arm of Sonatrach, for 2+1 x 35K cbm LPG tankers, and Diamantides group 2 x capsizes. HMD won the orders from AP Moller-Maersk for 2+3 x 20.7K cbm LPG. Business Week elected HMD as 41st among 50 Asian Best Enterprises.
SHI won the order from FLEX LNG for a LNG-FPSO combined liquefaction and storage LNG, for the first time in the industry. It is the additional to the order for the lower part of the project received in March. It is known to cost about $1 bil with the capacity to produce 1.7 mil tons of LNG a year. SHI got the order from Greek owner for 2 x 318K VLCCs and Cardiff Marine 4 x 158K tanker.

NSB Niederelbe is talking with DSME for 8 x 82K kamsarmax bulkers for the delivery of 2010, replacing its aborted 8 x 4,250 teu containership order. DSME started to contact the buyers to sell its new design for the Kamsarmax bulker for 2010-11 deliveries.
In the race to acquire DSME, attention is being focused on which of the contenders the National Pension Service, the country's single largest investor with $230 bil in assets, will team up with. The state-run pension fund is willing to spend as much as KW1.5 tril to buy Daewoo shares as part of a bidding consortium. 3 of the four contenders in the race to acquire a controlling stake in DSME, POSCO, GS Group and Hanwha Group, are looking to partner up with the fund. HHI is not interested in such a partnership. Cash reserves and funding capability have emerged key factors in the acquisition race, after the government told companies to refrain from financing M&A deals with excessive borrowing. 4 companies handed in their preliminary offers, which contain the offer price, information regarding the progress in finding financial investors, the funding plans, and other details. The companies plan to conduct a 3-week due diligence on DSME before making their final bids in Oct. The KDB plans to pick a preferred buyer in Oct and complete the sale by the end of this year.
Shares in DSME have been weak, as financial markets worldwide remain volatile. Before the crisis they predicted the deal could fetch as much as KW7 tril ($6.1 bil), are now saying that the price tag may go to KW5-6 tril, or even lower, citing a fall in the shipbuilder's stock price, along with diminishing confidence in the M&A market, and difficulty in financing.
The Financial Services Commission switched its stance. Foreign investors can join the bidding war for DSME. It is a massive U-turn from its ¡®hands off¡¯ warning to overseas suitors because of its defense business less than a month ago.
Hanhwa is told to negotiate with Greek shipping company and GS are in talks with domestic shipping companies for the consortium bid. SK Energy is joining POSCO and KLC is also considering joining POSCO.
The labor union of DSME declared allout struggle against improper bidder and block the due diligence by the bidders, as KDB officially invited HHI for the bidding. Also they made it clear all the bidders with the participation of shipyard will be considered unqualified. DSME¡¯s employee¡¯s stock ownership association with less than 1% stake in the shipbuilder is seeking joint bid with the contenders.

STX secured the orders from Maersk Tankers for 4+4 x 320K VLCCs, Dilek Transporting 2+1+2 x 80K kamsarmax bulkers, STX PO 8 x handymax bulkers, SCI 4 x 175K capsizes and Reederei Nord 2 x 12.8K pc. STX Dalian agreed with US Noble Drilling to build 4 x deepwater drillships. French government has agreed to buy a 9% stake in the STX-owned Aker Yards France and has options to purchase up to 34%, as they want to be consulted on all strategic decisions.

Hanjin Youngdo signed the contract with MPC Munchmeyer Petersen Capital AG for 2 x 180K bulkers and Sealink 1 x 180K bulk carrier. Hanjin Subic got the order from Emarat Maritime for 2 x 320K VLCC. Hanjin is to venture into new territory, with a move into kamsarmax bulkers, a ship type with which they have never been interested in. Hanjin is aggressively marketing 82K kamsarmax vessels at the range of firm price of close to $60m each. They will build the ship at Youngdo yard in Pusan from the delivery of 2011.
Sungdong secured the orders from Navig8 for 2+1 x 316K VLCCs and Tsakos group 2+1 x 316K VLCCs. SPP had NS Lemos for 2+2 x 59K mini-panamax bulkers, 21st Century with Primerose Shipping for 2 x 34K bulkers.

Morgan Stanley acquired 8.48% stake in Hanjin Shipping.
Hanjin Shipping is offering KW 200 bil ($168.45 mil) of 3-year notes carrying interest of 7%, under the management of Hana IB Securities, KB Investment and Korea Development Bank.